<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
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Commission File No. 0-25034
GREATER BAY BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
California 77-0387041
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
</TABLE>
2860 West Bayshore Road, Palo Alto, California 94303
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (650) 813-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
9.75% Cumulative Trust Preferred Securities of GBB Capital I
Guarantee of Greater Bay Bancorp with respect to the
9.75% Cumulative Trust Preferred Securities of GBB Capital I
Preferred Share Purchase Rights
(Title of classes)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates,
based upon the closing sale price of the Common Stock on January 24, 2000, as
reported on the Nasdaq National Market System, was approximately $460,826,000.
Shares of Common Stock held by each officer, director and holder of 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. Such determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of January 24, 2000, 12,837,382 shares of the Registrant's Common Stock
were outstanding.
DOCUMENT INCORPORATED BY REFERENCE: PART OF FORM 10K INTO WHICH INCORPORATED:
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Definitive Proxy Statement for Annual Part III
Meeting of Shareholders to be filed within
120 days of the fiscal year ended December 31, 1999
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PART I
Discussions of certain matters contained in this Annual Report on Form 10-K
may constitute forward-looking statements within the meaning of the Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve
risks and uncertainties. These forward-looking statements relate to, among other
things, expectations of the business environment in which Greater Bay Bancorp
(referred to as the "Company" when such reference includes Greater Bay Bancorp
and its subsidiaries, collectively, "Greater Bay" when referring only to the
parent company and "the Banks" when referring only to Greater Bay's banking
subsidiaries, Bay Area Bank, Bay Bank of Commerce, Cupertino National Bank,
Golden Gate Bank, Mid-Peninsula Bank and Peninsula Bank of Commerce) operates,
projections of future performance, perceived opportunities in the market and
statements regarding the Company's mission and vision. The Company's actual
results, performance and achievements may differ materially from the results,
performance and achievements expressed or implied in such forward-looking
statements. For a discussion of some of the factors that might cause such a
difference, see "Item 1. Business - Factors That May Affect Future Results of
Operations".
ITEM 1. BUSINESS.
Greater Bay Bancorp
Greater Bay is a bank holding company operating Bay Area Bank ("BAB"),
Bay Bank of Commerce ("BBC"), Cupertino National Bank ("CNB"), Golden Gate
Bank ("Golden Gate"), Mid-Peninsula Bank ("MPB") and Peninsula Bank of
Commerce ("PBC"). The Company also owns GBB Capital I and GBB Capital II, both
of which are Delaware statutory business trusts, which were formed for the
exclusive purpose of issuing and selling Trust Preferred Securities ("TPS").
Greater Bay also includes the following operating divisions: Greater Bay Bank
Contra Costa Region ("CCR"), Greater Bay Bank Fremont Region ("FR"), Greater
Bay Bank Santa Clara Valley Commercial Banking Group ("SCVG"), Greater Bay
Bank SBA Lending Group ("SBA Group"), Greater Bay Corporate Finance Group
("CFG"), Greater Bay International Banking Division ("IBD"), Greater Bay Trust
Company ("GBTC"), Pacific Business Funding ("PBF") and Venture Banking Group
("VBG"). The Company provides a wide range of commercial banking services to
small and medium-sized businesses, real estate developers, property managers,
business executives, professionals and other individuals. The Company operates
throughout Silicon Valley, the San Francisco Peninsula and the East Bay
Region, with eighteen offices located in Cupertino, Fremont, Hayward,
Millbrae, Palo Alto, Redwood City, San Francisco, San Jose, San Leandro, San
Mateo, San Ramon, Santa Clara and Walnut Creek. At December 31, 1999, the
Company had total assets of $2.6 billion, total net loans of $1.7 billion and
total deposits of $2.3 billion.
History
Greater Bay became a multi-bank holding company as the result of the merger
(the "1996 Merger"), effective November 27, 1996, of Cupertino National Bancorp
("Cupertino") and Mid-Peninsula Bancorp ("Mid-Peninsula"). Mid-Peninsula was
incorporated as a California Corporation on November 14, 1984 under the name San
Mateo County Bancorp as the bank holding company of WestCal National Bank. In
1994, WestCal National Bank was merged into MPB, which commenced operations in
October 1987. Concurrently San Mateo County Bancorp changed its name to Mid-
Peninsula Bancorp. The name was then changed to Greater Bay Bancorp as a result
of the 1996 Merger. Upon consummation of the 1996 Merger, CNB became a wholly-
owned subsidiary of Greater Bay. CNB commenced operations in May 1985.
Greater Bay has continued to expand its presence within its market area by
affiliating with other quality banking organizations, and select niche financial
services companies. In addition the Company has been successful in opening key
regional bank locations to respond to market and client demands, while also
selectively opening key new businesses that expand the Company's product
offerings.
The following provides a chronological listing of the Company has completed
since November 27, 1996:
<TABLE>
<CAPTION>
Year
Commenced
Date of Merger Entity Former Bank Holding Company Operations
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<S> <C> <C> <C>
December 23, 1997 PBC none 1981
May 8, 1998 Golden Gate Pacific Rim Bancorporation ("PRB") 1976
August 31, 1998 Pacific Business n/a 1995
Funding Corporation/1/
May 21, 1999 BAB Bay Area Bancshares 1979
October 15, 1999 BBC Bay Commercial Services ("BCS") 1981
</TABLE>
/1/ Pacific Business Funding Corporation ("PBFC") was an asset-based lending
and factoring company which now operates as a division of CNB and conducts
business under the name PBF.
These mergers were all accounted for as a pooling-of-interests and,
accordingly, all of the financial information of the Company for the periods
prior to the mergers had been restated as if the mergers has occurred at the
beginning of the earliest reporting period presented.
On March 3, 1997, GBB Capital I, a statutory business trust, was formed for
the exclusive purpose of issuing and selling TPS and using the proceeds from the
sale of the TPS to acquire Junior Subordinated Debentures issued by Greater Bay.
On May 18, 1998 GBB Capital II, a statutory business trust, was formed for the
exclusive purpose of issuing and selling additional TPS.
Company Goals:
The Company strives to achieve seven primary goals. These goals include:
. Developing a greater banking presence throughout the San Francisco Bay
Area and other selected markets primarily in Northern California by
increasing the number of banking offices available to clients;
Since November 1996, the Company also commenced new business initiatives,
including CCR, CFG, FR, SCVG and IBD.
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. Reaching a critical mass in the Company's market areas to meet the
competitive challenges of the banking and financial services industries;
. Maximizing the utilization of capital by increasing the float and
marketability of its common stock and, by virtue of its larger size,
obtaining access to lower cost capital;
. Realizing operating efficiencies through the acquisition of banking and
financial services companies under a holding company umbrella;
. Generating increased loan and fee income as a result of the higher
lending limits available to the combined entity;
. Leveraging marketing expense to improve the return on the combined
entity's marketing investment; and
. Enabling banking and financial services subsidiaries to cross-sell
services.
Super Community Banking Philosophy
In order to meet the demands of the increasingly competitive banking and
financial services industries, we have adopted a business philosophy referred to
as the "Super Community Banking Philosophy". Our Super Community Banking
Philosophy is based on our belief that banking clients value doing business with
locally managed institutions that can provide a full service commercial banking
relationship through an understanding of the clients' financial needs and the
flexibility to deliver customized solutions through our menu of products and
services. We also believe that banks who affiliate with Greater Bay and
implement our Super Community Banking Philosophy are better able to build
successful client relationships as the holding company provides cost effective
administrative support services while promoting bank autonomy and flexibility in
serving client needs.
To implement this philosophy, we operate each of our banking subsidiaries by
retaining their independent names and separate Boards of Directors. Our banking
subsidiaries have established strong reputations and client followings in
their market areas through attention to client service and an understanding of
client needs.
In an effort to capitalize on the identities and reputations of the Banks,
the Company currently intends to continue to market its services under each
Bank's name, primarily through each Bank's relationship managers. The primary
focus for the Banks' relationship managers is to cultivate and nurture their
client relationships. Relationship managers are assigned to each borrowing
client to provide continuity in the relationship. This emphasis on personalized
relationships requires that all of the relationship managers maintain close ties
to the communities in which they serve, so they are able to capitalize on their
efforts through expanded business opportunities for the Banks.
While client service decisions and day-to-day operations are maintained at
the Banks, Greater Bay offers the advantages of affiliation with a multi-bank
holding company by providing expanded client support services, such as increased
client lending capacity, business cash management and international trade
finance services. In addition, Greater Bay provides centralized administrative
functions, including support in credit policy formulation and review, investment
management, data processing, accounting, loan servicing and other specialized
support functions. All of these centralized services are designed to enhance the
ability of the relationship manager to expand their client relationship base.
Corporate Growth Strategy
The Company's primary goal is to become the preeminent independent financial
services company in Northern California. The Company's primary business strategy
is to focus on increasing its market share within the communities it serves
through continued internal growth. The Company also pursues opportunities to
expand its market share through select acquisitions that management believes
complement the Company's businesses. Management pursues acquisition
opportunities in contiguous and infill market areas. Consistent with the
Company's operating philosophy and growth strategy, Greater Bay regularly
evaluates opportunities to acquire banks and other financial services companies
that complement the Company's existing business, expand its market coverage and
share and enhance its client product offerings.
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Recent Events
On January 31, 2000, Mt. Diablo Bancshares ("MD Bancshares") the former
holding company of Mt. Diablo National Bank ("MDNB"), merged with and into
Greater Bay. Upon consummation of the merger, the outstanding shares of MD
Bancshares were converted into an aggregate of 1,395,499 shares of Greater Bay's
stock. The stock was issued to MD Bancshares' shareholders in a tax-free
exchange accounted for as a pooling-of-interests. As of December 31, 1999, MD
Bancshares has $220.5 million in assets, $205.5 million in deposits and $12.8
million in shareholders' equity. MDNB has offices located in Danville,
Pleasanton and Lafayette, California.
On December 14, 1999, Greater Bay and Coast Bancorp, the holding company of
Coast Commercial Bank ("CCB"), a California state chartered bank, signed a
definitive agreement for a merger between the two companies. The agreement
provides for Coast Bancorp shareholders to receive approximately 3,105,000
shares of Greater Bay stock, subject to certain adjustments based on movements
in the Company's stock price, in a tax-free exchange to be accounted for as a
pooling-of-interests. The transaction is expected to be completed early in the
second quarter of 2000, subject to regulatory and shareholder approvals. As of
December 31, 1999, Coast Bancorp had $370.0 million in assets, $300.6 million in
deposits and $33.0 million in shareholders' equity. CCB's offices are located in
Aptos, Capitola, Santa Cruz, Scotts Valley and Watsonville, California.
On January 26, 2000, Greater Bay, Bank of Santa Clara ("BSC") and GBB Merger
Corp. signed a definitive agreement for a merger between BSC and GBB Merger
Corp., as a result of which BSC will become a wholly owned subsidiary of Greater
Bay. The agreement provides for BSC shareholders to receive approximately
2,017,000 shares of Greater Bay stock, subject to certain adjustments based on
movements in Greater Bay's stock price in a tax-free exchange to be accounted
for as a pooling-of-interests. The transaction is expected to be completed late
in the second quarter of 2000, subject to regulatory and shareholder approvals.
As of December 31, 1999, BSC had $326.9 million in assets, $293.7 million in
deposits and $31.4 million in shareholders' equity. BSC has eight offices
located in Milpitas, San Jose, Santa Clara and Sunnyvale, California.
Assuming the acquisitions of MD Bancshares, Coast Bancorp and BSC had been
completed as of December 31, 1999, the Company would have had proforma assets of
$3.5 billion, deposits of $3.1 billion and $238.0 million of shareholders'
equity on a pooled basis.
Greater Bay Bancorp's Family of Companies
The following provides a summary of all of the affiliated banks and
operating divisions of the Company.
Banks
Bay Area Bank
BAB presently has one full service regional office. At December 31,
1999, BAB had total assets of $170.2 million, total net loans of $115.4 million
and total deposits of $152.6 million.
Bay Bank of Commerce
BBC presently has three full service regional offices. At December 31,
1999, BBC had total assets of $143.6 million, total net loans of $100.1 million
and total deposits of $130.4 million.
Cupertino National Bank
CNB presently has seven locations, including five full service regional
offices. At December 31, 1999, CNB had total assets of $1.0 billion, total net
loans of $727.6 million and total deposits of $887.1 million.
Golden Gate Bank
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Golden Gate presently has one full service regional office. On December
31, 1999, Golden Gate had total assets of $205.1 million, total net loans of
$104.5 million and total deposits of $191.3 million.
Mid-Peninsula Bank
MPB presently has four full service regional offices. On December 31,
1999, MPB had total assets of $820.2 million, total net loans of $508.7 million
and total deposits of $705.5 million.
Peninsula Bank of Commerce
PBC presently has one full service regional office. On December 31,
1999, PBC had total assets of $256.9 million, total net loans of $158.7 million
and total deposits of $234.2 million.
Operating Divisions
Greater Bay Trust Company
GBTC provides trust services to support the trust needs of the Banks'
business and personal clients. These services include, but are not limited to,
custodial, investment management, estate planning resources and employee benefit
plan services.
Venture Banking Group
VBG serves the needs of companies in their start-up and development
phase, allowing them to access a banking relationship early in their
development. The loans to this target group of clients are generally secured by
the accounts receivable, inventory and equipment of the companies. The financial
strength of these companies also tends to be bolstered by the presence of
venture capital investors among their shareholders.
Greater Bay Bank SBA Lending Group
The SBA Group provides loans to smaller businesses on which the Small
Business Administration ("SBA") generally provides guarantees between 65% to 80%
of the principle loan amount. In 1994, the SBA named CNB's SBA Group a Preferred
Lender. The SBA awards Preferred Lender status to lenders who have demonstrated
superior ability to generate, underwrite and service loans that the SBA
guarantees. This status results in more rapid turnaround of loan applications
submitted to the SBA for approval.
Pacific Business Funding
PBF is an asset-based lending and factoring division that provides
alternative funding and support programs designed to enhance the Company's small
business banking services.
Greater Bay Bank Santa Clara Valley Commerical Banking Group
SCVG offers a full line of business banking services, catering to the
needs of small to medium-sized businesses, professional firms and executives who
own and operate their business. The services include a full range of deposit
accounts, cash management and credit facilities custom-tailored to meet the
specific needs of its clients.
Greater Bay Corporate Finance Group
CFG primarily focuses on originating loans to companies that have
revenues in excess of $20 million and financing requirements in the range of $5
million to $250 million. CFG participates in syndicated loan transactions and
direct sourced transactions where CFG is the lead agent.
Greater Bay Bank Contra Costa Region and Greater Bay Bank Fremont Region
The Company believes that the East Bay has a tremendous potential for
growth. In order to establish a presence in the East Bay market, the Company
formed CCR and FR. Each of these offices offers a full line of business
banking services.
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International Banking Division
IBD provides a wide range of financial services to support the
international banking needs of the Banks' clients, including identifying certain
risks of conducting business abroad and, providing international letters of
credit and trade finance services. In 1999, the Export-Import Bank of the United
States ("Ex-Im Bank") granted IBD level "A" delegated authority status to
provide foreign receivable financing to local exporters. Ex-Im Bank allows "A"
level delegated authority lenders to approve working capital loans up to $3.5
million per exporter, and to approve an aggregate total of up to $50 million in
loans.
Banking Services
The Company provides a wide range of commercial banking and financial
services to small and medium-sized businesses, real estate developers and
property managers, business executives, professionals and other individuals.
The Banks offer a wide range of deposit products, including the normal
range of personal and business checking and savings accounts, time deposits and
individual retirement accounts. The Banks also offer a wide range of specialized
services designed to attract and service the needs of clients and include cash
management and international trade finance services for business clients,
traveler's checks, safe deposit and MasterCard and Visa merchant deposits
services.
The Banks also engage in the full complement of lending activities,
including commercial, real estate and consumer loans. The Banks provide
commercial loans for working capital and business expansion to small and medium-
sized businesses with annual revenues generally in the range of $1.0 million to
$100.0 million with a primary focus on business clients with borrowing needs
between $2.0 million and $10.0 million. The Banks' commercial clients are drawn
from a wide variety of manufacturing, technology, real estate, wholesale and
service businesses. The Banks provide interim real estate loans primarily in the
Banks' service areas for single-family residences, which typically range between
approximately $500,000 and $1.0 million, multi-unit projects, which typically
range between approximately $1.5 million and $4.0 million and commercial real
estate, primarily owner-occupied, which typically range between $1.5 million to
$7.5 million. The Banks also provide medium term commercial real estate loans or
credits, typically ranging between $1.0 million and $10.0 million for the
financing of commercial or industrial buildings where the owners either use the
properties for business purposes or derive income from tenants.
Market Area
The Banks concentrate on marketing their services to small and medium-
sized businesses, professionals and individuals in Alameda, Contra Costa, Santa
Clara, San Francisco and San Mateo Counties.
. BAB's primary base of operations is in Redwood City, California and
includes central San Mateo County. San Mateo county has a population
of approximately 701,000.
. BBC's primary base of operations is San Leandro, California and
extends through Alameda and Southern Contra Costa counties. Alameda
County and Contra Costa County have populations of approximately
1,400,000 and 918,000, respectively.
. CNB's primary base of operations is in Cupertino, California, which
is in the center of the geographical area referred to as "Silicon
Valley", and CNB's operations extend throughout Santa Clara County.
Santa Clara County has a population of approximately 1,641,000.
. Golden Gate's primary base of operations is centered in the City and
County of San Francisco. San Francisco County has a population of
approximately 745,000.
. MPB's primary base of operations is centered in Palo Alto, California
and extends north through San Mateo County. MPB has formed operating
divisions located in Alameda and Contra Costa Counties.
. PBC's primary base of operations is centered in Millbrae, California,
and includes northern San Mateo County and extends into San Francisco
County.
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The commercial base of Alameda, Contra Costa, Santa Clara, San Francisco
and San Mateo Counties is diverse and includes computer and semiconductor
manufacturing, professional services, biotechnology, printing and publishing,
aerospace, defense and real estate construction, as well as wholesale and retail
trade. As a result of its geographic concentration, the Company's results depend
largely upon economic conditions in these areas. While the economy in the
Company's market areas has exhibited positive economic and employment trends,
there is no assurance that such trends will continue. A deterioration in
economic conditions could have a material adverse impact on the quality of the
Company's loan portfolio and the demand for its products and services, and
accordingly its results of operations. See "Item 1. Business -Factors That May
Affect Future Results of Operations."
Lending Activities
Underwriting and Credit Administration
The lending activities of each of the Banks is guided by the basic
lending policies established by its Board of Directors. Each loan must meet
minimum underwriting criteria established in the Bank's lending policy. Lending
authority is granted to officers of each bank on a limited basis. Loan requests
which exceed individual officer approval limits are approved on a pooled-
authority basis up to a maximum limit for each Bank. Loan requests exceeding
these limits are submitted to the Company's Officers' Loan Committee, which
consists of the President and Chief Executive Officer of Greater Bay, the
Executive Vice President and Chief Lending Officer of Greater Bay, the Executive
Vice President and Chief Credit Officer of MPB and the Senior Vice President and
Chief Credit Officer of Greater Bay. All members of the Officers' Loan Committee
are also officers of the individual Banks. Loan requests which exceed the limits
of the Company's Officers' Loan Committee are submitted to the Directors' Loan
Committee. The Directors' Loan Committee consists of at least one outside
director of each of the Banks. Each of these committees meets on a regular basis
in order to provide timely responses to the Banks' clients.
The Company's credit administration function includes an internal review
and the regular use of an outside loan review firm. In addition, the Company's
Officers' Loan Committee, Chief Administrative Officer/Chief Financial Officer
and Controller review information at least once a month related to
delinquencies, nonperforming assets, classified assets and other pertinent
information to evaluate credit risk within each Bank's loan portfolio and to
recommend general reserve percentages and specific reserve allocations.
Loan Portfolio
The composition of the Company's gross loan portfolio at December 31,
1999 was as follows:
. Approximately 69.3% were commercial loans, including 25.1% which
were commercial real estate term loans;
. Approximately 21.7% were in real estate construction and land loans,
which are split evenly between commercial properties and residential
projects;
. Approximately 5.4% were other real estate term loans, primarily
secured by residential real estate;
. The balance of the portfolio consists of consumer loans.
The interest rates the Banks charge vary with the degree of risk, size
and maturity of the loans. In addition, competition from other financial
services companies and analyses of the client's deposit relationship with the
Bank and the Bank's cost of funds impact the interest rate charged on loans.
Commercial Loans. In their commercial loan portfolios, the Banks provide
personalized financial services to the diverse commercial and professional
businesses in their market areas. Commercial loans, including those made by the
VBG, consist primarily of short-term loans (normally with a maturity of under
one year) to support business operation. The Banks focus on businesses with
annual revenues generally between $1.0 million and $100.0 million with borrowing
needs generally between $2.0 million and $10.0 million. The Banks' commercial
clients are drawn from a wide variety of manufacturing, technology, real estate,
wholesale and service businesses. Commerical loans also include those loans made
by the CFG.
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Commercial loans typically include revolving lines of credit
collateralized by inventory, accounts receivable and equipment. Emphasis is
placed on the borrower's earnings history, capitalization, secondary sources of
repayment, and in some instances, third party guarantees or highly liquid
collateral (such as timedeposits and investment securities). Commercial loan
pricing is generally at a rate tied to the prime rate, as quoted in the Wall
Street Journal, or the Banks' reference rates.
The VBG provides innovative lending products and other financial
services, tailored to the needs of start-up and development-stage companies.
The VBG's typical clients include technology companies, ranging from multimedia,
software and telecommunications providers to bio-technology and medical device
firms. Borrowings are generally secured by minimum cash balances, accounts
receivable, intellectual property rights, inventory and equipment of the
companies. Because these companies are in the start-up or development phase,
many of them will not generate any revenues for several years. The Company often
receives warrants from these companies as part of the compensation for its
services. As of December 31, 1999, the VGB had loans outstanding to start-up and
development phase companies of approximately $40 million.
The CFG specializes in providing commercial loans to small and medium
sized, non-investment grade middle market companies. Credit facilities are
designed to supplement the borrower's ongoing working capital needs, assist with
the purchase of fixed assets or aid in the financing of strategic acquisitions.
Loan facilities are typically collateralized by a first priority security
interest in all of the borrower's assets and are generally structured based on
the value of the borrower's assets or the company's historical cash flow. The
CFG sources its own relationships as well as participating in syndicated loan
transaction lead by other financial institutions serving the CFG's identified
market niche.
The Company participates in many SBA programs and, through the SBA
Group, is a "preferred lender". Preferred lender status is granted to a lender
which has made a certain number of SBA loans and which, in the opinion of the
SBA, has staff who are qualified and experienced in this area. As a preferred
lender, the Company has the authority to authorize, on behalf of the SBA, the
SBA guaranty on loans under the 7A program. This can represent a substantial
savings to the customer. The Company utilizes both the 504 program, which is
focused toward longer-term financing of buildings, and other long-term assets,
and the 7A program which is primarily used for financing of the equipment,
inventory and working capital needs of eligible businesses generally over a
three- to seven-year term. The Company's collateral position in the SBA loans is
enhanced by the SBA guaranty in the case of 7A loans, and by lower loan-to-value
ratios under the 504 program. The Company generally sells the guaranteed portion
of its SBA loans in the secondary market.
Real Estate Construction and Land Loans. The Banks' real estate
construction loan activity focuses on providing short-term (generally less than
one year maturity) loans to individuals and developers with whom the Banks have
established relationships for the construction primarily of single family
residences in the Banks' market areas. Real estate construction loans for single
family residences typically range between approximately $500,000 and $1.0
million, and for multi-unit projects typically range between approximately $1.5
million and $5.0 million.
Residential real estate construction loans are typically secured by
first deeds of trust and require guarantees of the borrower. The economic
viability of the project and the borrower's credit-worthiness are primary
considerations in the loan underwriting decision. Generally, these loans provide
an attractive yield, but may carry a higher than normal risk of loss or
delinquency, particularly if general real estate values decline. The Banks
utilize approved independent local appraisers and loan-to-value ratios which
generally do not exceed 65% to 75% of the appraised value of the property. The
Banks monitor projects during the construction phase through regular
construction inspections and a disbursement program tied to the percentage of
completion of each project.
The Banks also occasionally make land loans to borrowers who intend to
construct a single family residence on the lot generally within twelve months.
In addition, the Banks also make commercial real estate construction loans to
high net worth clients with adequate liquidity for construction of office and
warehouse properties. Such loans are typically secured by first deeds of trust
and require guarantees of the borrower.
Real Estate Term Loans. The Banks provide medium-term commercial real
estate loans secured by commercial or industrial buildings where the owner
either uses the property for business purposes ("owner-user properties") or
derives income from tenants ("investment properties"). The Company's loan
policies require the principal balance of the loan, generally between $400,000
and $15.0 million, to be no more than 70% of the stabilized appraised value of
the underlying real estate collateral. The loans, which are typically secured by
first deeds of trust only, generally have terms of no more than seven to ten
years and are amortized over 20-25 years. Most of these loans have rates tied to
the prime rate, with many adjusting whenever the prime rate changes; the
remaining loans adjust every two or three years depending on the term of the
loan.
Consumer and Other Loans. The Banks' consumer and other loan portfolio
is divided between installment loans secured by automobiles and aircraft, and
home improvement loans and lines of credit which are often secured by
residential real estate. Installment loans tend to be fixed rate and longer-term
(one-to-five year maturity), while the equity lines of credit and home
improvement loans are generally floating rate and are reviewed for renewal on an
annual basis. The Banks also have a minimal portfolio of credit card loans,
issued as an additional service to its clients.
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Deposits
The Banks obtain deposits primarily from small and medium-sized
businesses, business executives, professionals and other individuals. Each of
the Banks offers the usual and customary range of depository products that
commercial banks provide to customers. The Banks' deposits are not received from
a single depositor or group of affiliated depositors, the loss of any one of
which would have a material adverse effect on the business of the Company or any
of the Banks. Rates paid on deposits vary among the categories of deposits due
to different terms, the size of the individual deposit, and rates paid by
competitors on similar deposits.
CNB has two business units that provide significant support to its
deposit base. The Greater Bay Trust Company has approximately 8.2% of its
trust assets under management in liquid funds that are retained in CNB money
market demand accounts. At December 31, 1999, these funds totaled $57.1
million. The VBG is another source of deposits as most of the start-up phase
companies have significant liquidity that is deposited in CNB as part of the
banking relationship. At December 31, 1999, clients of the VBG had $322.8
million in deposits at CNB.
PBC holds $111.1 million from a single depositor (the "Special
Deposit"). Due to the uncertainty of the time the Special Deposit will remain
with PBC, management has invested a significant portion of the proceeds from
this deposit in agency securities with maturities of less than 90 days.
Trust Services
The GBTC, which is a division of CNB, offers a full range of fee-
based trust services directly to its clients and administers several types of
retirement plans, including corporate pension plans, 401(k) plans and
individual retirement plans, with an emphasis on the investment management,
custodianship and trusteeship of such plans. In addition, the Greater Bay
Trust Company acts as executor, administrator, guardian and/or trustee in the
administration of the estates of individuals. Investment and custodial
services are provided for corporations, individuals and nonprofit
organizations. Total assets under management by the GBTC were $697.4 million
at December 31, 1999, compared to $649.3 million at December 31, 1998, and
$577.7 million at December 31, 1997.
Competition
The banking and financial services industry in California generally,
and in the Banks' market areas specifically, is highly competitive. The
increasingly competitive environment is a result primarily of changes in
regulation, changes in technology and product delivery systems, and the
accelerating pace of consolidation among financial services providers. The Banks
compete for loans, deposits, and customers with other commercial banks, savings
and loan associations, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions, and
other non-bank financial service providers. Many of these competitors are much
larger in total assets and capitalization, have greater access to capital
markets and offer a broader range of financial services than the Banks. In
addition, recent federal legislation may have the effect of further increasing
the pace of consolidation within the financial services industry. See "Item 1.
Business - Supervision and Regulation - Financial Services Modernization
Legislation."
In order to compete with the other financial services providers, the
Banks principally rely upon local promotional activities, personal relationships
established by officers, directors, and employees with their customers, and
specialized services tailored to meet the needs of the communities served. In
those instances where the Banks are unable to accommodate a customer's needs,
the Banks may arrange for those services to be provided by their
correspondents. The Banks have eighteen offices located in Alameda, Contra
Costa, Santa Clara, San Francisco and San Mateo Counties in California.
Neither the deposits nor loans of the offices of the Banks exceed 1% of all
financial services companies located in the counties in which the Banks
operate.
Economic Conditions, Government Policies, Legislation, and Regulation
The Company's profitability, like most financial institutions, is
primarily dependent on interest rate differentials. In general, the difference
between the interest rates paid by the Banks on interest-bearing liabilities,
such as deposits and other borrowings, and the interest rates received by the
Banks on their interest-earning assets, such as loans extended to their clients
and securities held in their investment portfolios, comprise the major portion
of the Company's earnings. These rates are highly sensitive to many factors that
are beyond the control of Greater Bay and the Banks, such as inflation,
recession and unemployment, and the impact which
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future changes in domestic and foreign economic conditions might have on Greater
Bay and the Banks cannot be predicted.
The Company's business is also influenced by the monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). The Federal Reserve implements national monetary policies (with
objectives such as curbing inflation and combating recession) through its open-
market operations in U.S. Government securities by adjusting the required level
of reserves for depository institutions subject to its reserve requirements, and
by varying the target federal funds and discount rates applicable to borrowings
by depository institutions. The actions of the Federal Reserve in these areas
influence the growth of bank loans, investments, and deposits and also affect
interest rates earned on interest-earning assets and paid on interest-bearing
liabilities. The nature and impact on Greater Bay and the Banks of any future
changes in monetary and fiscal policies cannot be predicted.
From time to time, legislative acts, as well as regulations, are
enacted which have the effect of increasing the cost of doing business, limiting
or expanding permissible activities, or affecting the competitive balance
between banks and other financial services providers. Proposals to change the
laws and regulations governing the operations and taxation of banks, bank
holding companies, and other financial institutions and financial services
providers are frequently made in the U.S. Congress, in the state legislatures,
and before various regulatory agencies. See "Item 1. Business - Supervision and
Regulation."
Employees
At December 31, 1999, the Company had 430 full-time employees. None of
the employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be satisfactory.
Supervision and Regulation
General
Bank holding companies and banks are extensively regulated under both
federal and state law. This regulation is intended primarily for the protection
of depositors and the deposit insurance fund and not for the benefit of
shareholders of Greater Bay. Set forth below is a summary description of the
material laws and regulations which relate to the operations of Greater Bay and
the Banks. The description is qualified in its entirety by reference to the
applicable laws and regulations.
Greater Bay
Greater Bay, as a registered bank holding company, is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the "BHCA").
Greater Bay is required to file with the Federal Reserve quarterly and annual
reports and such additional information as the Federal Reserve may require
pursuant to the BHCA. The Federal Reserve may conduct examinations of Greater
Bay and its subsidiaries.
The Federal Reserve may require that Greater Bay terminate an activity
or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve believes the activity or the control of the
subsidiary or affiliate constitutes a significant risk to the financial safety,
soundness or stability of any of its banking subsidiaries. The Federal Reserve
also has the authority to regulate provisions of certain bank holding company
debt, including authority to impose interest ceilings and reserve requirements
on such debt. Under certain circumstances, Greater Bay must file written notice
and obtain approval from the Federal Reserve prior to purchasing or redeeming
its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property, or furnishing of services. Further, Greater Bay is required by
the Federal Reserve to maintain certain levels of capital. See "--Capital
Standards."
Greater Bay is required to obtain the prior approval of the Federal
Reserve for the acquisition of more than 5% of the outstanding shares of any
class of voting securities or substantially all of the assets of any bank or
bank holding company. Prior approval of the Federal Reserve is also required for
the merger or consolidation of Greater Bay and another bank holding company.
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Greater Bay is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks, or furnishing
services to its subsidiaries. However, Greater Bay, subject to the prior
approval of the Federal Reserve, may engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
Under Federal Reserve regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve's policy that in serving as a source of
strength to its subsidiary banks, a bank holding company should stand ready to
use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve to be an unsafe and unsound
banking practice or a violation of the Federal Reserve's regulations or both.
Greater Bay is also a bank holding company within the meaning of
Section 3700 of the California Financial Code. As such, Greater Bay and its
subsidiaries are subject to examination by, and may be required to file reports
with, the California Department of Financial Institutions.
Greater Bay's securities are registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As such, Greater Bay is subject to the information, proxy
solicitation, insider trading, and other requirements and restrictions of the
Exchange Act.
The Banks
CNB, as a national banking association, is subject to primary
supervision, examination, and regulation by the Office of the Comptroller of
the Currency (the "Comptroller"). BAB, BBC, Golden Gate, MPB, and PBC, as
California chartered banks, are subject to primary supervision, periodic
examination, and regulation by the California Department of Financial
Institutions (the "DFI") and the Federal Deposit Insurance Corporation (the
"FDIC"). To a lesser extent, the Banks are also subject to certain regulations
promulgated by the Federal Reserve. If, as a result of an examination of a
bank, the FDIC should determine that the financial condition, capital
resources, asset quality, earnings prospects, management, liquidity, or other
aspects of the bank's operations are unsatisfactory or that the bank or its
management is violating or has violated any law or regulation, various
remedies are available to the FDIC. Such remedies include the power to enjoin
"unsafe or unsound" practices, to require affirmative action to correct any
conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in
capital, to restrict the growth of the bank, to assess civil monetary
penalties, to remove officers and directors, and ultimately to terminate the
bank's deposit insurance, which for a California chartered bank would result
in a revocation of the bank's charter. The DFI has many of the same remedial
powers. None of the Banks have been subject to any such actions by their
respective regulatory authorities.
Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of the Banks. State and
federal statutes and regulations relate to many aspects of the Banks'
operations, including reserves against deposits, ownership of deposit accounts,
interest rates payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends, locations of branch offices, and capital
requirements. Further, the Banks are required to maintain certain levels of
capital. See "- Capital Standards."
Financial Services Modernization Legislation
On November 12, 1999, President Clinton signed into law the Gramm-
Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly preempt any state law
restricting the establishment of financial affiliations, primarily related to
insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among
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commercial banks, insurance companies, securities firms, and other financial
service providers by revising and expanding the BHCA framework to permit a
holding company system to engage in a full range of financial activities through
a new entity known as a Financial Holding Company. "Financial activities" is
broadly defined to include not only banking, insurance, and securities
activities, but also merchant banking and additional activities that the Federal
Reserve, in consultation with the Secretary of the Treasury, determines to be
financial in nature, incidental to such financial activities, or complementary
activities that do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally.
Generally, the Financial Services Modernization Act:
. Repeals historical restrictions on, and eliminates many
federal and state law barriers to, affiliations among banks, securities firms,
insurance companies, and other financial service providers;
. Provides a uniform framework for the functional regulation
of the activities of banks, savings institutions, and their holding companies;
. Broadens the activities that may be conducted by national
banks, banking subsidiaries of bank holding companies, and their financial
subsidiaries;
. Provides an enhanced framework for protecting the privacy of
consumer information;
. Adopts a number of provisions related to the capitalization,
membership, corporate governance, and other measures designed to modernize the
Federal Home Loan Bank system;
. Modifies the laws governing the implementation of the
Community Reinvestment Act ("CRA"); and
. Addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions.
In order for Greater Bay to take advantage of the ability to affiliate
with other financial services providers, Greater Bay must become a "Financial
Holding Company" as permitted under an amendment to the BHCA. To become a
Financial Holding Company, Greater Bay would file a declaration with the Federal
Reserve, electing to engage in activities permissible for Financial Holding
Companies and certifying that it is eligible to do so because all of its insured
depository institution subsidiaries are well-capitalized and well-managed. In
addition, the Federal Reserve must also determine that each insured depository
institution subsidiary of Greater Bay has at least a "satisfactory" CRA
rating. See "- The Banks - Community Reinvestment Act and Fair Lending
Developments." Greater Bay currently meets the requirements to make an
election to become a Financial Holding Company. Greater Bay's management has
not determined at this time whether it will seek an election to become a
Financial Holding Company. Greater Bay is examining its strategic business
plan to determine whether, based on market conditions, the relative financial
conditions of Greater Bay and its subsidiaries, regulatory capital
requirements, general economic conditions, and other factors, Greater Bay
desires to utilize any of its expanded powers provided in the Financial
Services Modernization Act.
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the BHCA or permitted by regulation.
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized" and "well-
managed." The total assets of all financial subsidiaries may not exceed the
lesser of 45% of a bank's total assets, or $50 billion. A national bank must
exclude from its assets and equity all equity investments, including retained
earnings, in a financial subsidiary. The assets of the subsidiary may not be
consolidated with the bank's assets. The bank must also have policies and
procedures to assess financial subsidiary risk and protect the bank from such
risks and potential liabilities.
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The Financial Services Modernization Act also includes a new section of
the Federal Deposit Insurance Act governing subsidiaries of state banks that
engage in "activities as principal that would only be permissible" for a
national bank to conduct in a financial subsidiary. It expressly preserves the
ability of a state bank to retain all existing subsidiaries. Because California
permits commercial banks chartered by the state to engage in any activity
permissible for national banks, BAB, BBC, Golden Gate, MPB and PBC will be
permitted to form subsidiaries to engage in the activities authorized by the
Financial Services Modernization Act, to the same extent as a national bank. In
order to form a financial subsidiary, the bank must be well-capitalized, and the
bank would be subject to the same capital deduction, risk management and
affiliate transaction rules as applicable to national banks.
Greater Bay and the Banks do not believe that the Financial Services
Modernization Act will have a material adverse effect on our operations in the
near-term. However, to the extent that it permits banks, securities firms, and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The Financial Services Modernization Act is intended to
grant to community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless, this act may
have the result of increasing the amount of competition that Greater Bay and the
Banks face from larger institutions and other types of companies offering
financial products, many of which may have substantially more financial
resources than Greater Bay and the Banks.
Dividends and Other Transfers of Funds
Dividends from the Banks constitute the principal source of income to
Greater Bay. Greater Bay is a legal entity separate and distinct from the Banks.
The Banks are subject to various statutory and regulatory restrictions on their
ability to pay dividends to Greater Bay. Under such restrictions, the amount
available for payment of dividends to Greater Bay by the Banks totaled $50.8
million at December 31, 1999. In addition, the DFI and the Federal Reserve
have the authority to prohibit the Banks from paying dividends, depending upon
the Banks' financial condition, if such payment is deemed to constitute an
unsafe or unsound practice.
The bank regulatory activities also have authority to prohibit the
Banks from engaging in activities that, in their respective opinions, constitute
unsafe or unsound practices in conducting their business. It is possible,
depending upon the financial condition of the bank in question and other
factors, that the bank regulatory activities could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the bank regulatory authorities have established
guidelines with respect to the maintenance of appropriate levels of capital by
banks or bank holding companies under their jurisdiction. Compliance with the
standards set forth in such guidelines and the restrictions that are or may be
imposed under the prompt corrective action provisions of federal law could limit
the amount of dividends which the Banks or Greater Bay may pay. An insured
depository institution is prohibited from paying management fees to any
controlling persons or, with certain limited exceptions, making capital
distributions if after such transaction the institution would be
undercapitalized. See "- Prompt Corrective Regulatory Action and Other
Enforcement Mechanisms" and "- Capital Standards" for a discussion of these
additional restrictions on capital distributions.
The Banks are subject to certain restrictions imposed by federal law on
any extensions of credit to, or the issuance of a guarantee or letter of credit
on behalf of, Greater Bay or other affiliates, the purchase of, or investments
in, stock or other securities thereof, the taking of such securities as
collateral for loans, and the purchase of assets of Greater Bay or other
affiliates. Such restrictions prevent Greater Bay and such other affiliates from
borrowing from the Banks unless the loans are secured by marketable obligations
of designated amounts. Further, such secured loans and investments by the Banks
to or in Greater Bay or to or in any other affiliate are limited, individually,
to 10.0% of the respective bank's capital and surplus (as defined by federal
regulations), and such secured loans and investments are limited, in the
aggregate, to 20.0% of the respective bank's capital and surplus (as defined by
federal regulations). California law also imposes certain restrictions with
respect to transactions involving Greater Bay and other controlling persons of
the Banks. Additional restrictions on transactions with affiliates may be
imposed on the Banks under the prompt corrective action provisions of federal
law. See "- Prompt Corrective Action and Other Enforcement Mechanisms."
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Capital Standards
The Federal Reserve, the Comptroller and the FDIC have adopted risk-
based minimum capital guidelines intended to provide a measure of capital that
reflects the degree of risk associated with a banking organization's operations
for both transactions reported on the balance sheet as assets and transactions,
such as letters of credit and recourse arrangements, which are recorded as off-
balance sheet items. Under these guidelines, nominal dollar amounts of assets
and credit equivalent amounts of off-balance sheet items are multiplied by one
of several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as commercial loans.
The federal banking agencies require a minimum ratio of qualifying
total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1
capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines,
federal banking regulators require banking organizations to maintain a minimum
amount of Tier 1 capital to total assets, referred to as the leverage ratio. For
a banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. In addition to these uniform risk-based
capital guidelines and leverage ratios that apply across the industry, the
regulators have the discretion to set individual minimum capital requirements
for specific institutions at rates significantly above the minimum guidelines
and ratios.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal banking agencies possess broad powers to take corrective and
other supervisory action to resolve the problems of insured depository
institutions, including but not limited to those institutions that fall below
one or more prescribed minimum capital ratios. Each federal banking agency has
promulgated regulations defining the following five categories in which an
insured depository institution will be placed, based on its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. At December 31, 1999, each of
the Banks and Greater Bay exceeded the required ratios for classification as
"well capitalized."
An institution that, based upon its capital levels, is classified as
well capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
critically undercapitalized unless its capital ratio actually warrants such
treatment.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation, or
any condition imposed in writing by the agency or any written agreement with the
agency.
Safety and Soundness Standards
The federal banking agencies have adopted guidelines designed to assist
the federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to: (i) internal controls,
information systems and internal audit systems, (ii) loan documentation, (iii)
credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation,
fees and benefits. In addition, the federal banking agencies have also adopted
safety and soundness guidelines with respect to asset quality and earnings
standards. These guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. Under these standards, an insured depository institution should:
(i) conduct periodic asset quality reviews to identify problem assets, (ii)
estimate the inherent losses in problem assets and establish reserves that are
sufficient to absorb estimated losses, (iii) compare problem asset totals to
capital, (iv) take appropriate corrective action to resolve problem assets, (v)
consider the size and potential risks of material asset concentrations, and (vi)
provide periodic asset quality reports with adequate information for management
and the board of directors to assess the level of asset risk. These guidelines
also set forth standards for evaluating and monitoring earnings and for ensuring
that earnings are sufficient for the maintenance of adequate capital and
reserves.
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Premiums for Deposit Insurance
The Banks' deposit accounts are insured by the Bank Insurance Fund
("BIF"), as administered by the FDIC, up to the maximum permitted by law.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC or the institution's
primary regulator.
The FDIC charges an annual assessment for the insurance of deposits, which
as of December 31, 1999, ranged from 0 to 27 basis points per $100 of insured
deposits, based on the risk a particular institution poses to its deposit
insurance fund. The risk classification is based on an institution's capital
group and supervisory subgroup assignment. Pursuant to the Economic Growth and
Paperwork Reduction Act of 1996 (the "Paperwork Reduction Act"), at January 1,
1997, the Banks began paying, in addition to their normal deposit insurance
premium as a member of the BIF, an amount equal to approximately 1.3 basis
points per $100 of insured deposits toward the retirement of the Financing
Corporation bonds ("Fico Bonds") issued in the 1980s to assist in the recovery
of the savings and loan industry. Members of the Savings Association Insurance
Fund ("SAIF"), by contrast, pay, in addition to their normal deposit insurance
premium, approximately 6.4 basis points. Under the Paperwork Reduction Act, the
FDIC is not permitted to establish SAIF assessment rates that are lower than
comparable BIF assessment rates. Effective January 1, 2000, the rate paid to
retire the Fico Bonds will be equal for members of the BIF and the SAIF. The
Paperwork Reduction Act also provided for the merging of the BIF and the SAIF by
January 1, 1999 provided there were no financial institutions still chartered as
savings associations at that time. However, as of January 1, 1999, there were
still financial institutions chartered as savings associations.
Interstate Banking and Branching
The BHCA permits bank holding companies from any state to acquire banks and
bank holding companies located in any other state, subject to certain
conditions, including certain nationwide- and state-imposed concentration
limits. Greater Bay has the ability, subject to certain restrictions, to
acquire by acquisition or merger branches outside its home state. The
establishment of new interstate branches is also possible in those states with
laws that expressly permit it. Interstate branches are subject to certain laws
of the states in which they are located. Competition may increase further as
banks branch across state lines and enter new markets.
Community Reinvestment Act and Fair Lending Developments
The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act activities. The CRA generally requires the federal banking
agencies to evaluate the record of a financial institution in meeting the credit
needs of its local communities, including low- and moderate-income
neighborhoods. A bank may be subject to substantial penalties and corrective
measures for a violation of certain fair lending laws. The federal banking
agencies may take compliance with such laws and CRA obligations into account
when regulating and supervising other activities.
A bank's compliance with its CRA obligations is based on a performance-
based evaluation system which bases CRA ratings on an institution's lending
service and investment performance. When a bank holding company applies for
approval to acquire a bank or other bank holding company, the Federal Reserve
will review the assessment of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. In
connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding", "satisfactory", "needs to
improve" or "substantial noncompliance". Based on examinations conducted in
November 1999, MPB was rated outstanding and BAB, CNB, Golden Gate and PBC were
rated satisfactory. BBC was examined in 1997 and was rated satisfactory.
Year 2000 Compliance
The Federal Financial Institutions Examination Council issued an
interagency statement to the chief executive officers of all federally
supervised financial institutions regarding year 2000 project management
awareness. The statement provides guidance to financial institutions, providers
of data services, and all examining personnel of the federal banking agencies
regarding the potential year 2000 problem. The federal banking agencies
conducted year 2000 compliance examinations to ascertain whether a bank's year
2000 readiness presented an unsafe and unsound banking practice. The Company's
core banking systems successfully responded to the century date change. The
Company will continue to monitor its major vendors and clients throughout year
2000.
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Factors That May Affect Future Results of Operations
In addition to the other information contained in this report, the
following risks may affect the Company. If any of these risks occurs, our
business, financial condition or operating results could be adversely affected.
Failure to successfully execute our growth strategy or to integrate
recently acquired subsidiaries could adversely affect our performance.
Our financial performance and profitability will depend on our ability to
execute our corporate growth strategy and manage our recent and possible future
growth. Although management believes that it has substantially integrated the
business and operations of recently acquired subsidiaries, there can be no
assurance that unforeseen issues relating to the assimilation of these
subsidiaries will not adversely affect us. In addition, any future acquisitions
and our continued growth may present operating and other problems that could
have an adverse effect on our business, financial condition and results of
operations. Our financial performance will also depend on our ability to
maintain profitable operations through implementation of our Super Community
Banking Philosophy, which is described earlier. Accordingly, there can be no
assurance that we will be able to execute our growth strategy or maintain the
level of profitability that we have recently experienced.
Changes in market interest rates may adversely affect our performance.
Our earnings are impacted by changing interest rates. Changes in interest
rates impact the demand for new loans, the credit profile of existing loans, the
rates received on loans and securities and rates paid on deposits and
borrowings. The relationship between the rates received on loans and securities
and the rates paid on deposits and borrowings is known as interest rate spread.
Given our current volume and mix of interest-bearing liabilities and interest-
earning assets, our interest rate spread could be expected to increase during
times of rising interest rates and, conversely, to decline during times of
falling interest rates. Although we believe our current level of interest rate
sensitivity is reasonable, significant fluctuations in interest rates may have
an adverse effect on our business, financial condition and results of
operations.
Our Bay Area business focus and economic conditions in the Bay Area could
adversely affect our operations.
Our operations are located in Northern California and concentrated
primarily in Alameda, Contra Costa, San Francisco, San Mateo and Santa Clara
Counties, which includes the area known as the "Silicon Valley". As a result of
this geographic concentration, our results depend largely upon economic
conditions in these areas. A deterioration in economic conditions in our market
areas, particularly in the technology and real estate industries on which these
areas depend, could have a material adverse impact on the quality of our loan
portfolio, the demand for our products and services, which in turn may have a
material adverse effect on our results of operations.
We are subject to government regulation that could limit or restrict our
activities, which in turn could adversely impact our operations.
The financial services industry is regulated extensively. Federal and state
regulation is designed primarily to protect the deposit insurance funds and
consumers, and not to benefit our shareholders. These regulations can sometimes
impose significant limitations on our operations. In addition, these
regulations are constantly evolving and may change significantly over time.
Significant new laws or changes in existing laws or repeal of existing laws may
cause our results to differ materially. Further, federal monetary policy,
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions for us.
Competition may adversely affect our performance.
The financial services business in our market areas is highly competitive.
It is becoming increasingly competitive due to changes in regulation,
technological advances, and the accelerating pace of consolidation among
financial services providers. We face competition both in attracting deposits
and in making loans. We compete for loans principally through the interest
rates and loan fees we charge and the efficiency and quality of
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services we provide. Increasing levels of competition in the banking and
financial services businesses may reduce our market share or cause the prices we
charge for our services to fall. Our results may differ in future periods
depending upon the nature or level of competition.
If a significant number of borrowers, guarantors and related parties fail
to perform as required by the terms of their loans, we will sustain losses.
A significant source of risk arises from the possibility that losses will
be sustained if a significant number of our borrowers, guarantors and related
parties fail to perform in accordance with the terms of their loans. We have
adopted underwriting and credit monitoring procedures and credit policies,
including the establishment and review of the allowance for credit losses, that
management believes are appropriate to minimize this risk by assessing the
likelihood of nonperformance, tracking loan performance and diversifying our
credit portfolio. These policies and procedures, however, may not prevent
unexpected losses that could materially adversely affect our results of
operations.
ITEM 2. PROPERTIES.
The Company occupies its administrative offices under a lease which,
including options to renew, expires in 2002. PBC owns its main office located in
Millbrae, California. BBC owns an office space adjacent to its main office
located in San Leandro, California. The Company leases seventeen additional
offices throughout the San Francisco Bay Area under operating leases. Those
leases expire under various dates, including options to renew, through August
2019.
The Company believes its present facilities are adequate for its present
needs but anticipates the need for additional facilities as it continues to
grow. The Company believes that, if necessary, it could secure suitable
alternative facilities on similar terms without adversely affecting operations.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in certain legal proceedings
arising in the normal course of its business. Management believes that the
outcome of these matters will not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submission of matters to a vote of security holders during
the fourth quarter of the year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's stock is traded on the Nasdaq National Market ("Nasdaq")
under the symbol "GBBK". The quotations shown reflect the high and low sales
prices for the Company's common stock as reported by Nasdaq. The following
information is restated to reflect the 2-1 stock split effective as of April 30,
1998.
<TABLE>
<CAPTION>
Cash dividends
For the period indicated High Low declared
-------- ------- --------------
1999
<S> <C> <C> <C>
Fourth Quarter.............................................. $43.44 $33.81 $ 0.12
Third Quarter............................................... 36.00 31.88 0.12
Second Quarter.............................................. 33.25 28.25 0.12
First Quarter............................................... 33.00 27.75 0.12
1998
Fourth Quarter.............................................. $35.00 $24.50 $0.095
Third Quarter............................................... 39.00 23.38 0.095
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Second Quarter.............................................. 36.00 28.88 0.095
First Quarter............................................... 31.38 24.13 0.095
</TABLE>
The company estimates that there were approximately 3,300 shareholders at
December 31, 1999.
On December 22, 1999, Greater Bay completed a private offering of 535,000
shares of restricted common stock to institutional investors. U.S. Bancorp Piper
Jaffray, Inc. and Keefe, Bruyette & Woods, Inc. acted as placement agents for
the offering. Proceeds from the offering were $19,795,000, less placement agent
fees of $834,000. On January 10, 2000, Greater Bay filed a registration
statement on Form S-3 (333-94343) to register the shares, which has not yet
become effective. Greater Bay intends to use the net proceeds from the offering
for general corporate purposes.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Information regarding Selected Consolidated Financial Data appears on page
A-1 under the caption "Financial Highlights" and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information regarding Management's Discussion and Analysis of Financial
Condition and Results of Operations appears on pages A-2 through A-25 under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding Quantitative and Qualitative Disclosures About Market
Risk appears on page A-22 through A-23 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosures About Market Risk" and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information regarding Financial Statements and Supplementary Data appears
on pages A-26 through A-66 under the caption "Consolidated Balance Sheets",
"Consolidated Statements of Operations", "Consolidated Statements of
Comprehensive Income", "Consolidated Statements of Shareholders' Equity",
"Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial
Statements" and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company intends to file a definitive proxy statement for the 2000
Annual Meeting of Shareholders (the "Proxy Statement") with the Securities and
Exchange Commission within 120 days of December 31, 1999. Information regarding
directors of Greater Bay will appear under the caption "DISCUSSION OF THE
PROPOSALS RECOMMENDED BY THE BOARD - Proposal 1: "Election of Directors" in the
Proxy Statement and is incorporated herein by reference. Information regarding
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, and executive officers will appear under the captions "INFORMATION
ABOUT DIRECTORS AND EXECUTIVE OFFICERS - Section 16(a) Beneficial Ownership
Reporting Compliance by Directors and Executive Officers" and "- Executive
Officers" in the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
17
<PAGE>
Information regarding executive compensation will appear under the captions
"INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS - How We Compensate
Executive Officers", "- How We Compensate Directors", "- Employment Contracts,
Termination of Employment and Change of Control Arrangements", "- Executive
Committee's Report on Executive Compensation" , "- Compensation Committee
Interlocks and Insider Participation" and "- Performance Graph" in the Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management will appear under the caption "INFORMATION ABOUT GREATER BAY STOCK
OWNERSHIP" in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions will
appear under the caption "INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS -
Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following documents are filed as part of this report:
<TABLE>
<S> <C>
Consolidated Balance Sheet at December 31, 1999 and 1998............................. A - 26
Consolidated Statement of Income for each of the years in the three-year
period ended December 31, 1999, 1998 and 1997 respectively.......................... A - 27
Consolidated Statement of Comprehensive Income for each of the years
in the three-year period ended December 31, 1999, 1998 and 1997 respectively........ A - 28
Consolidated Statement of Changes in Shareholders' Equity for each of
years in the three-year period ended December 31, 1999, 1998 and 1997 respectively.. A - 29
Consolidated Statement of Cash Flows for each of the years in the three-
year period ended December 31, 1999, 1998 and 1997 respectively..................... A - 30
Notes to the Consolidated Financial Statements....................................... A - 31
Independent Auditors' Report......................................................... A - 67
</TABLE>
2. Financial Statement Schedules
All financial statement schedules are omitted because of the absence of the
conditions under which they are required to be provided or because the
required information is included in the financial statements listed above
and/or related notes.
3. Exhibits
See Item 14(c) below.
(b) Reports on Form 8-K
During the fourth quarter of 1999 the Company filed three reports on
Form 8-K as described below.
On October 19, 1999, the Company filed a report on Form 8-K
reporting under Item 5. Other Events (i) the closing of its
merger with Bay Commercial Services on October 15, 1999 and (ii)
the Company's financial results for the period ended September
30, 1999.
On December 16, 1999, the Company filed a report on Form 8-K
reporting under Item 5. Other Events (i) the signing of a
definitive agreement on December 14, 1999 for a merger with Coast
Bancorp, (ii) the fourth quarter dividend declaration and (iii)
the addition of the Company to the Nasdaq Financial - 100 Index.
On December 28, 1999, the Company filed a report on Form 8-K
reporting under Item 5. Other Events the consummation of a
private equity offering on December 22, 1999.
18
<PAGE>
(c) Exhibits Required by Item 601 of Regulation S-K
Reference is made to the Exhibit Index on page 22 for exhibits filed
as part of this report.
(d) Additional Financial Statements
Not applicable.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 27th day of
January, 2000.
Greater Bay Bancorp
By /s/ DAVID L. KALKBRENNER
---------------------------
David L. Kalkbrenner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ DAVID L. KALKBRENNER President, Chief Executive January 27, 2000
- ------------------------------------------ Officer and Director
David L. Kalkbrenner (Principal Executive
Officer)
/s/ STEVEN C. SMITH Executive Vice President, January 27, 2000
- ------------------------------------------ Chief Administrative
Steven C. Smith Officer and Chief
Financial Officer
(Principal Financial and
Accounting
Officer)
/s/ GEORGE R. COREY Director January 27, 2000
- ------------------------------------------
George R. Corey
Director , 2000
- ------------------------------------------
John M. Gatto
/s/ JAMES E. JACKSON Director January 27, 2000
- ------------------------------------------
James E. Jackson
/s/ STANLEY A. KANGAS Director January 27, 2000
- ------------------------------------------
Stanley A. Kangas
/s/ REX D. LINDSAY Director January 27, 2000
- ------------------------------------------
Rex D. Lindsay
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ GEORGE M. MARCUS Director January 27, 2000
- ------------------------------------------
George M. Marcus
/s/ DUNCAN L. MATTESON Director January 27, 2000
- ------------------------------------------
Duncan L. Matteson
/s/ GLEN McLAUGHLIN Director January 27, 2000
- ------------------------------------------
Glen McLaughlin
/s/ REBECCA Q. MORGAN Director January 27, 2000
- ------------------------------------------
Rebecca Q. Morgan
/s/ DICK J. RANDALL Director January 27, 2000
- ------------------------------------------
Dick J. Randall
Director , 2000
- ------------------------------------------
Donald H. Seiler
/s/ WARREN R. THOITS Director January 27, 2000
- ------------------------------------------
Warren R. Thoits
</TABLE>
21
<PAGE>
EXHIBIT INDEX
- --------------
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S>
2.1 Agreement and Plan of Reorganization by and between Greater Bay Bancorp and Coast Bancorp
dated December 15, 1999 (1)
3.1 Articles of Incorporation of Greater Bay Bancorp, as amended (2)
3.2 Bylaws of Greater Bay Bancorp, as amended (2)
3.3 Certificate of Determination of Series A Preferred Stock of Greater Bay Bancorp (filed as Exhibit A to
Exhibit 4.1 hereto)
4.1 Rights Agreement (3)
4.2 Junior Subordinated Indenture dated as of March 31, 1997 between Greater Bay Bancorp and
Wilmington Trust Company, as Trustee (4)
4.3 Officers' Certificate and Company Order, dated March 31, 1997 (4)
4.4 Certificate of Trust of GBB Capital I (5)
4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997 (5)
4.6.1 Amended and Restated Trust Agreement of GBB Capital I, among Greater Bay Bancorp, Wilmington
Trust Company and the Administrative Trustees named therein dated as of March 31, 1997 (4)
4.6.2 Successor Administrative Trustee and First Amendment to Amended and Restated Trust
Agreement (2)
4.7 Trust Preferred Certificate of GBB Capital I (4)
4.8 Common Securities Certificate of GBB Capital I (4)
4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington Trust Company, dated as of
March 31, 1997 (4)
4.10 Agreement as to Expenses and Liabilities, dated as of March 31, 1997 (4)
4.11 Form of Subordinated Debentures (6)
4.12 Supplemental Debenture Agreement of Cupertino National Bancorp dated as of November 22,
1996 (5)
4.13 Supplemental Debenture Agreement dated November 27, 1996 between Cupertino National Bancorp
and Mid-Peninsula Bancorp (5)
4.14 Supplemental Debenture Agreement, dated as of March 27, 1997 (4)
4.15 Indenture between Greater Bay Bancorp and Wilmington Trust Company, as Debenture Trustee, dated
as of August 12, 1998 (7)
4.16 Form of Exchange Junior Subordinated Debentures (filed as Exhibit A to Exhibit 4.15 hereto)
4.17 Certificate of Trust of GBB Capital II, dated as of May 18, 1998 (7)
4.18 Amended and Restated Trust Agreement of GBB Capital II, among Greater Bay Bancorp, Wilmington
Trust Company and the Administrative Trustees named therein dated as of August 12, 1998 (7)
4.19 Form of Exchange Capital Security Certificate (filed as Exhibit A-1 to Exhibit 4.5 hereto)
4.20 Common Securities Guarantee Agreement of Greater Bay Bancorp, dated as of August 12, 1998 (7)
4.21 Series B Capital Securities Guarantee Agreement of Greater Bay Bancorp and Wilmington Trust
Company dated as of November 27, 1998 (2)
4.22 Liquidated Damages Agreement among Greater Bay Bancorp, GBB Capital II, and Sandler O'Neill
and Partners, L.P., dated as of August 7, 1998 (7)
4.23 Registration Rights Agreement between Greater Bay Bancorp and The Leo K.W. Lum PRB Revocable
Trust dated May 8, 1998 (8)
4.24 Securities Purchase Agreement, dated as of December 21, 1999, between Greater Bay Bancorp and the
investors identified therein (9)
4.25 Registration Rights Agreement, dated as of December 22, 1999, between Greater Bay Bancorp and the
investors identified therein (9)
10.1 Employment Agreement with David L. Kalkbrenner, dated as of January 1, 1999 (10)(11)
10.2 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Greater Bay Bancorp and David L. Kalkbrenner (10)
10.3 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Mid-Peninsula Bank and Susan K. Black (10)
10.4 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Cupertino National Bank and David R. Hood (10)
10.5 Employee Supplemental Compensation Benefits Agreement, dated as of April 6, 1998, between
Greater Bay Bancorp and Gregg A. Johnson (10)
10.6 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Greater Bay Bancorp and Steven C. Smith (10)
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
10.7 Greater Bay Bancorp 401(k) Profit Sharing Plan (10)(12)
10.8.1 Greater Bay Bancorp Employee Stock Purchase Plan (10)(13)
10.8.2 Amendment to Greater Bay Bancorp Employee Stock Purchase Plan (10)(12)
10.9 Greater Bay Bancorp Change in Control Pay Plan I (10)(12)
10.10.1 Greater Bay Bancorp Change in Control Pay Plan II (10)(12)
10.10.2 Amendment No. 1 to Greater Bay Bancorp Change in Control Pay Plan II (10)(11)
10.11 Greater Bay Bancorp Termination and Layoff Pay Plan I (10)(12)
10.12.1 Greater Bay Bancorp Termination and Layoff Pay Plan II (10)(12)
10.12.2 Amendment No. 1 to Greater Bay Bancorp Termination and Layoff Pay Plan II (10)(11)
10.13.1 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan (10)(12)
10.13.2 Amendment to Greater Bay Bancorp 1997 Elective Deferred Compensation Plan (2)(10)
10.14 Greater Bay Bancorp 1996 Stock Option Plan, as amended (2)(10)
10.15 Form of Indemnification Agreement between Greater Bay Bancorp and with directors and certain
executive officers (4)
10.15.1 Agreement, dated November 4, 1999, between Greater Bay Bancorp and Wells Fargo Bank, National
Association
10.15.2 Revolving Line of Credit Note, dated November 4, 1999, given by Greater Bay Bancorp in favor of
Wells Fargo Bank, National Association
12.1 Statement re Computation of Ratios of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Restated Financial Data Schedules for the years ended December 31, 1999 and 1998 (included in
electronic filing through EDGAR)
27.2 Restated Financial Data Schedules for the year ended December 31, 1997 (included in electronic
filing through EDGAR)
27.3 Restated Financial Data Schedules for the quarters ended December 31, 1999 and September 30, 1999
(included in electronic filing through EDGAR)
27.4 Restated Financial Data Schedules for the quarters ended June 30, 1999 and March 31, 1999 (included
in electronic filing through EDGAR)
27.5 Restated Financial Data Schedules for the quarters ended December 31, 1998 and September 30, 1998
(included in electronic filing through EDGAR)
27.6 Restated Financial Data Schedules for the quarters ended June 30, 1998 and March 31, 1998
(included in electronic filing through EDGAR)
</TABLE>
- ------------------
<TABLE>
<S> <C>
1. Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K filed
with the SEC on December 16, 1999.
2. Incorporated by reference from Greater Bay Bancorp's Annual Report on Form 10-K filed
with the SEC on February 17, 1999.
3. Incorporated by reference from Greater Bay Bancorp's Form 8-A12G filed with the SEC on
November 25, 1998.
4. Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K dated
June 5, 1997.
5. Incorporated by reference from Greater Bay Bancorp's Registration Statement on Form S-1
(File No. 333-22783) filed with the SEC on March 5, 1997.
6. Incorporated herein by reference from Exhibit 1 of Cupertino National Bancorp's Form 8-K
(File No. 0-18015) filed with the SEC on October 25, 1995
7. Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K filed
with the SEC on August 28, 1998.
8. Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K filed with
the SEC on May 20, 1998.
9. Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K filed with
the SEC on December 28, 1999.
10. Represents executive compensation plans and arrangements of Greater Bay Bancorp.
11. Incorporated by reference from Greater Bay Bancorp's Quarterly Report on Form 10-Q filed
with the SEC on May 4, 1999.
12. Incorporated by reference from Greater Bay Bancorp's Annual Report on Form 10-K filed
with the SEC on March 31, 1998.
13. Incorporated herein by reference from Greater Bay Bancorp's Proxy Statement for Annual
Meeting of Shareholders filed with the SEC on May 13, 1997.
</TABLE>
23
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table represents the selected financial information at and
for the five years ended December 31, 1999:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
(Dollars in thousands, except per share amounts) 1999 1998*
Statement of Operations Data ----------------------------
<S> <C> <C>
Interest income $ 175,350 $ 134,998
Interest expense 71,618 54,659
----------------------------
Net interest income 103,732 80,339
Provision for loan losses 12,249 6,369
----------------------------
Net interest income after provision for loan losses 91,483 73,970
Other income 17,319 9,716
Nonrecurring - warrant income 14,508 945
----------------------------
Total other income 31,827 10,661
Operating expenses 61,159 50,752
Other expenses - nonrecurring 12,160 1,341
----------------------------
Total operating expenses 73,319 52,093
----------------------------
Income before income tax expense & merger and other
related nonrecurring costs 49,991 32,538
Income tax expense 15,706 10,706
----------------------------
Income before merger and other related nonrecurring costs
and extraordinary items 34,285 21,832
Merger and other related nonrecurring costs, net of tax (6,486) (1,674)
---------------------------
Net income before extraordinary items 27,799 20,158
Extraordinary items (88) -
----------------------------
Net income $ 27,711 $ 20,158
============================
Per Share Data (1)
Income per share (before merger, nonrecurring, and
extraordinary items)
Basic $ 2.45 $ 1.80
Diluted 2.32 1.70
Net income per share
Basic $ 2.28 $ 1.69
Diluted 2.17 1.59
Cash dividends per share (2) $ 0.48 $ 0.38
Book value per common share $ 12.55 $ 10.08
Shares outstanding at year end 12,806,115 11,743,127
Average common shares outstanding 12,146,000 11,927,000
Average common and common equivalent shares outstanding 12,794,000 12,683,000
Performance Ratios
Return on average assets (before merger, nonrecurring and
extraordinary items) 1.31% 1.28%
Return on average common shareholders' equity (before merger,
nonrecurring and extraordinary items) 22.62% 19.92%
Return on average assets 1.22% 1.20%
Return on average common shareholders' equity 21.09% 18.67%
Net interest margin (3) 4.91% 5.15%
Balance Sheet Data - At Period End
Assets $ 2,624,965 1,882,391
Loans, net 1,715,284 1,184,753
Investment securities 470,105 397,412
Deposits 2,300,888 1,602,342
Subordinated debt - 3,000
Trust Preferred Securities 50,000 50,000
Common shareholders' equity 160,755 118,436
Asset Quality Ratios
Nonperforming assets to total loans and OREO 0.31% 0.31%
Nonperforming assets to total assets 0.21% 0.20%
Allowance for loan losses to total loans 2.17% 2.01%
Allowance for loan losses to non-
performing assets 701.62% 641.87%
Net charge-offs to average loans 0.10% 0.15%
Regulatory Capital Ratios
Leverage Ratio 7.93% 7.97%
Tier 1 Capital 9.35% 10.03%
Total Capital 10.81% 12.74%
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
(Dollars in thousands, except per share amounts) 1997* 1996* 1995*
Statement of Operations Data ----------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 107,020 $ 79,110 $ 68,023
Interest expense 39,969 27,375 23,494
----------------------------------------------------------
Net interest income 67,051 51,735 44,529
Provision for loan losses 7,078 3,029 1,274
----------------------------------------------------------
Net interest income after provision for loan losses 59,973 48,706 43,255
Other income 8,867 8,432 6,291
Nonrecurring - warrant income 1,162 92 -
----------------------------------------------------------
Total other income 10,029 8,524 6,291
Operating expenses 43,864 39,978 38,125
Other expenses - nonrecurring - - -
----------------------------------------------------------
Total operating expenses 43,864 39,978 38,125
----------------------------------------------------------
Income before income tax expense & merger and other
related nonrecurring costs 26,138 17,252 11,421
Income tax expense 9,371 6,415 4,309
----------------------------------------------------------
Income before merger and other related nonrecurring
costs and extraordinay items 16,767 10,837 7,112
Merger and other related nonrecurring costs, net of tax (2,282) (1,991) -
----------------------------------------------------------
Net income before extraordinary items 14,485 8,846 7,112
Extraordinary items - - -
----------------------------------------------------------
Net income $ 14,485 $ 8,846 $ 7,112
==========================================================
Per Share Data (1)
Income per share (before merger, nonrecurring, and
extraordinary items)
Basic $ 1.36 $ 0.99 $ 0.81
Diluted 1.28 0.94 0.78
Net income per share
Basic $ 1.29 $ 0.81 $ 0.69
Diluted 1.21 0.77 0.65
Cash dividends per share (2) $ 0.30 $ 0.22 $ 0.20
Book value per common share $ 8.64 $ 7.81 $ 7.35
Shares outstanding at year end 11,396,992 10,921,888 10,521,125
Average common shares outstanding 11,243,000 10,903,000 10,381,000
Average common and common equivalent shares outstanding 11,939,000 11,490,000 10,860,000
Performance Ratios
Return on average assets (before merger, nonrecurring
and extraordinary items) 1.21% 1.07% 1.03%
Return on average common shareholders' equity (before merger,
nonrecurring and extraordinary items) 16.26% 12.10% 11.02%
Return on average assets 1.15% 0.95% 1.03%
Return on average common shareholders' equity 15.42% 10.76% 11.02%
Net interest margin (3) 5.69% 6.04% 6.98%
Balance Sheet Data - At Period End
Assets 1,456,119 $ 1,119,880 $ 846,007
Loans, net 892,736 702,301 510,529
Investment securities 261,295 166,383 174,678
Deposits 1,279,709 997,392 748,335
Subordinated debt 3,000 3,000 3,000
Trust Preferred Securities 20,000 - -
Common shareholders' equity 98,701 85,533 77,339
Asset Quality Ratios
Nonperforming assets to total loans and OREO 0.74% 1.61% 2.05%
Nonperforming assets to total assets 0.47% 1.02% 1.25%
Allowance for loan losses to total loans 2.13% 1.79% 1.80%
Allowance for loan losses to non-
performing assets 280.79% 110.01% 86.47%
Net charge-offs to average loans 0.25% 0.07% 0.26%
Regulatory Capital Ratios
Leverage Ratio 8.04% 7.65% 9.14%
Tier 1 Capital 10.79% 10.30% 12.60%
Total Capital 12.30% 11.87% 14.32%
</TABLE>
*Restated on a historical basis to reflect the mergers between Greater Bay
Bancorp and CNB, PBC, PRB (the parent of Golden Gate) PBFC, BA Bancshares (the
parent of BAB) and BCS (the parent of BBC) on a pooling-of-interests basis.
(1) Restated to reflect 2-for-1 stock split effective as of April 30, 1998.
(2) Includes only those dividends declared by Greater Bay, and excludes those
dividends paid by Greater Bay's subsidiaries prior to the completion of
their mergers with Greater Bay.
(3) Net interest margin for 1999, 1998 and 1997 includes the lower spread
earned on the PBC Special Deposit (see Note 7 to the Financial Statements
for details). Excluding the PBC Special Deposit, net interest margin would
have been 5.21%, 5.33%, 6.11% and 6.41% for 1999, 1998, 1997 and 1996,
respectively.
A-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Greater Bay Bancorp ("Greater Bay", on a parent-only basis, and the
"Company", on a consolidated basis) is a bank holding company operating Bay Area
Bank ("BAB"), Bay Bank of Commerce ("BBC"), Cupertino National Bank ("CNB"),
Golden Gate Bank ("Golden Gate"), Mid-Peninsula Bank ("MPB") and Peninsula Bank
of Commerce ("PBC"). The Company also owns GBB Capital I and GBB Capital II,
both of which are Delaware statutory business trusts, which were formed for the
exclusive purpose of issuing and selling Cumulative Trust Preferred Securities
("TPS"). Greater Bay also includes the operating divisions: Greater Bay Bank
Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Santa
Clara Valley Commerical Banking Group, Greater Bay Bank SBA Lending Group,
Greater Bay Corporate Finance Group, Greater Bay International Banking Division,
Greater Bay Trust Company, Pacific Business Funding and the Venture Banking
Group. The Company provides a wide range of commercial banking services to small
and medium-sized businesses, real estate developers, property managers, business
executives, professionals and other individuals. The Company operates throughout
Silicon Valley, the San Francisco Peninsula and the East Bay Region, with 18
offices located in Cupertino, Fremont, Hayward, Millbrae, Palo Alto, Redwood
City, San Francisco, San Jose, San Leandro, San Mateo, San Ramon, Santa Clara
and Walnut Creek. At December 31, 1999, the Company had total assets of $2.6
billion, total net loans of $1.7 billion and total deposits of $2.3 billion.
All of the Company's mergers were accounted for as a pooling-of-interests
and, accordingly, all of the financial information for the Company for the
periods prior to the mergers has been restated as if the mergers had occurred
at the beginning of the earliest reporting period presented.
The following discussion and analysis is intended to provide greater
details of the results of operations and financial condition of the Company. The
following discussion should be read in conjunction with the information under
"Selected Financial Information" and the Company's consolidated financial data
included elsewhere in this document. Certain statements under this caption
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that might cause such a difference include
but are not limited to economic conditions, competition in the geographic and
business areas in which the Company conducts its operations, fluctuation in
interest rates, credit quality and government regulation.
RESULTS OF OPERATIONS
The Company's operating results included merger, nonrecurring and
extraordinary items of $7.9 million ($2.0 million net of tax), $3.1 million
($1.4 million net of tax) and $884,000 ($378,000 net of tax) in 1999, 1998 and
1997, respectively. The following table summarizes net income, net income per
share and key financial ratios before and after merger, nonrecurring and
extraordinary items for the years presented.
<TABLE>
<CAPTION>
Before merger, nonrecurring and extraordinary items
-----------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 29,722 $ 21,515 $ 15,273
Net income per share:
Basic $ 2.45 $ 1.80 $ 1.36
Diluted $ 2.32 $ 1.70 $ 1.28
Return on average assets 1.31% 1.28% 1.21%
Return on average shareholders' equity 22.62% 19.92% 16.26%
</TABLE>
<TABLE>
<CAPTION>
After merger, nonrecurring and extraordinary items
-----------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 27,711 $ 20,158 $ 14,485
Net income per share:
Basic $ 2.28 $ 1.69 $ 1.29
Diluted $ 2.17 $ 1.59 $ 1.21
Return on average assets 1.22% 1.20% 1.15%
Return on average shareholder's equity 21.09% 18.67% 15.42%
</TABLE>
The Company reported net income of $27.7 million in 1999, a 37.5% increase
over 1998 net income of $20.2 million. The net income in 1998 was a 39.2%
increase over 1997 income of $14.5 million. Basic net income per share was $2.28
for 1999, as compared to $1.69 for 1998 and $1.29 for 1997. Diluted net income
per share was $2.17, $1.59 and $1.21 for 1999, 1998 and 1997, respectively. The
return on average assets and return on average shareholders' equity were 1.22%
and 21.09% in 1999, compared with 1.20% and 18.67% in 1998 and 1.15% and 15.42%
in 1997, respectively.
A-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The 37.5% increase in 1999 net income as compared to 1998, was the result
of significant growth in loans, investments, trust assets and deposits. In 1999,
net interest income increased 29.1% as compared to 1998. This increase was
primarily due to a 35.5% increase in average interest-earning assets in
1999 compared to the prior year. The impact on income of the increase in average
interest-earning assets was partially offset by the decline the net yield earned
on interest-earning assets to 5.11% in 1999 as compared to 5.34% in 1998 (see "-
Net Interest Income" for additional information on the increase in net interest
income). The increases in loans, trust assets and deposits also contributed to
the 46.3% increase in trust fees, loan and international banking fees, service
charges and other fees. Other income includes $4.0 million in appreciation
recognized on the conversion of equity securities received in the settlement of
a loan into a publicly traded equity security. Increases in operating expenses
were required to service and support the Company's growth. As a result,
increases in revenue were partially offset in 1999 by a 20.5% increase in
recurring operating expenses, as compared to 1998.
Net income in 1999 included nonrecurring expenses, net of nonrecurring
income and taxes, of $2.0 million, an increase of $654,000 compared to 1998. In
1999, merger and related nonrecurring costs were $6.5 million, an increase of
$4.8 million from 1998. Warrant income, net of related expenses and taxes, was
$5.8 million in 1999, an increase of $5.3 million compared to 1998. In 1999, the
Company donated $7.8 million in appreciated securities to the Greater Bay
Bancorp Foundation. This resulted in $1.2 million in donation expense, net of a
tax benefit derived on the transaction, which is a $1.0 million increase
compared to 1998.
The 39.2% increase in 1998 net income as compared to 1997 was the result
of significant growth in loans, investments, trust assets and deposits. In 1998,
net interest income increased 19.8% as compared to 1997. This increase was
primarily due to a 32.4% increase in average interest-earning assets in
1998 compared to the prior year. The impact on income of the increase in average
interest-earning assets was partially offset by the decline the net yield earned
on interest-earning assets to 5.34% in 1998 as compared to 5.82% in 1997 (see "-
Net Interest Income" for additional information on the increase in net interest
income). The increases in loans, trust assets and deposits also contributed to
the 5.0% increase in trust fees, loan and international banking fees, service
charges and other fees. Increases in operating expenses were required to service
and support the Company's growth. As a result, increases in revenue were
partially offset in 1998 by a 11.0% increase in recurring operating expenses, as
compared to 1997.
Net income in 1998 included nonrecurring expenses, net of nonrecurring
income and taxes, of $1.4 million, an increase of $569,000 compared to 1997. In
1998, merger and related nonrecurring costs were $1.7 million, a decrease of
$608,000 from 1997. Warrant income, net of related expenses and taxes, was
$554,000 in 1998, a decrease of $155,000 compared to 1997. In 1998, the Company
donated $1.3 million in appreciated securities to the Greater Bay Bancorp
Foundation. This resulted in $237,000 in donation expense, net of a tax benefit
derived on the transaction. There was no such donation in 1997. In 1997, the
Company had nonrecurring income of $1.0 million, net of taxes, related to
payment from an insurance carrier of a litigation settlement charge taken in
1995.
Net Interest Income
Net interest income, excluding capital securities, increased 29.5% to
$107.8 million in 1999 from $83.2 million in 1998. This increase was primarily
due to the $552.8 million, or 35.5%, increase in average interest-earning assets
which was partially offset by a 36 basis point decrease in the Company's net
yield on
A-3
<PAGE>
interest-earning assets. Net interest income, excluding capital securities,
increased 21.4% in 1998 from $68.5 million in 1997. This increase was primarily
due to the $381.4 million, or 32.4%, increase in average interest-earning
assets, which was partially offset by the 43 basis point decrease in the
Company's net yield on interest-earning assets. The capital securities were
Trust Preferred Securities issued in 1997 and 1998 which cost 8.54% and 9.00% in
1999 and 1998, respectively. Including the capital securities, net interest
income increased 30.6% to $113.7 million in 1999 and 22.8% to $87.1 million in
1998. The capital securities were issued primarily as a
source of capital and not as a source of liquidity.
The following table presents, for the years indicated, condensed average
balance sheet information for the Company, together with interest income and
yields earned on average interest-earning assets and interest expense and rates
paid on average interest-bearing liabilities. Average balances are average daily
balances.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1999
-------------------------------------------------
Average
Average Yield/
(Dollars in thousands) Balance (1) Interest Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fed funds sold $ 161,059 $ 8,425 5.23%
Other short term securities 70,532 3,830 5.43%
Investment securities:
Taxable 335,598 22,587 6.73%
Tax-exempt (3) 74,276 3,680 4.95%
Loans (2) 1,470,272 136,828 9.31%
----------- ---------
Total interest-earning
assets 2,111,737 175,350 8.30%
Noninterest-earning assets 164,179
----------- ---------
Total assets $ 2,275,916 175,350
=========== ----------
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings $ 1,196,164 43,189 3.61%
Time deposits, over $100,000 340,153 16,127 4.74%
Other time deposits 80,690 3,794 4.70%
----------- ----------
Total interest-bearing deposits 1,617,007 63,110 3.90%
Other borrowings 72,983 4,169 5.71%
Subordinated debt 607 68 11.20%
----------- ----------
Total interest-bearing liabilities 1,690,597 67,347 3.98%
Trust Preferred Securities 50,000 4,271 8.54%
----------- ----------
Total interest-bearing liabilities and
capital securities 1,740,597 71,618 4.11%
Noninterest-bearing deposits 374,803
Other noninterest-bearing liabilities 29,132
Shareholders' equity 131,384
-----------
Total liabilities and
shareholders' equity $ 2,275,916 $ 71,618
=========== ----------
Net interest income $ 103,732
==========
Including capital securities:
- -----------------------------
Interest rate spread 4.19%
Contribution of interest free funds 0.72%
Net yield on interest-earnings
assets(4) 4.91%
Excluding capital securities:
- -----------------------------
Interest rate spread 4.32%
Contribution of interest free funds 0.79%
Net yield on interest-earnings
assets(4) 5.11%
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1998
--------------------------------------------------------
Average
Average Yield/
(Dollars in thousands) Balance (1) Interest Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fed funds sold $ 106,129 $ 5,709 5.38%
Other short term securities 96,765 5,454 5.64%
Investment securities:
Taxable 318,283 19,303 6.06%
Tax-exempt (3) 48,759 2,440 5.00%
Loans (2) 988,968 102,092 10.32%
----------- ---------
Total interest-earning
assets 1,558,904 134,998 8.66%
Noninterest-earning assets 127,332
----------- ---------
Total assets $ 1,686,236 134,998
=========== ---------
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings $ 852,112 31,277 3.67%
Time deposits, over $100,000 220,059 11,154 5.07%
Other time deposits 89,751 3,979 4.43%
----------- ---------
Total interest-bearing deposits 1,161,922 46,410 3.99%
Other borrowings 78,115 5,054 6.47%
Subordinated debt 3,000 345 11.50%
----------- ---------
Total interest-bearing liabilities 1,243,037 51,809 4.17%
Trust Preferred Securities 31,671 2,850 9.00%
----------- ---------
Total interest-bearing liabilities and
capital securities 1,274,708 54,659 4.29%
Noninterest-bearing deposits 285,028
Other noninterest-bearing liabilities 18,510
Shareholders' equity 107,990
-----------
Total liabilities and
shareholders' equity $ 1,686,236 $ 54,659
=========== ---------
Net interest income $ 80,339
=========
Including capital securities:
- -----------------------------
Interest rate spread 4.37%
Contribution of interest free funds 0.78%
Net yield on interest-earnings assets(4) 5.15%
Excluding capital securities:
- -----------------------------
Interest rate spread 4.49%
Contribution of interest free funds 0.84%
Net yield on interest-earnings assets(4) 5.34%
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997
--------------------------------------------
Average
Average Yield/
Balance (1) Interest Rate
--------------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fed funds sold $ 86,722 $ 4,662 5.38%
Other short term securities 97,586 5,198 5.33%
Investment securities:
Taxable 161,377 10,677 6.62%
Tax-exempt (3) 24,134 1,068 4.43%
Loans (2) 807,676 85,415 10.58%
----------- --------
Total interest-earning
assets 1,177,495 107,020 9.09%
Noninterest-earning assets 87,326
----------- --------
Total assets $ 1,264,821 107,020
=========== ---------
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings $ 652,370 23,964 3.67%
Time deposits, over $100,000 155,810 7,808 5.01%
Other time deposits 96,772 4,653 4.81%
----------- --------
Total interest-bearing deposits 904,952 36,425 4.03%
Other borrowings 19,343 1,736 8.97%
Subordinated debt 3,000 345 11.50%
----------- --------
Total interest-bearing liabilities 927,295 38,506 4.15%
Trust Preferred Securities 15,000 1,463 9.75%
----------- --------
Total interest-bearing liabilities and
capital securities 942,295 39,969 4.24%
Noninterest-bearing deposits 215,785
Other noninterest-bearing liabilities 12,815
Shareholders' equity 93,926
-----------
Total liabilities and
shareholders' equity $ 1,264,821 $ 39,969
=========== --------
Net interest income $ 67,051
========
Including capital securities:
- -----------------------------
Interest rate spread 4.85%
Contribution of interest free funds 0.85%
Net yield on interest-earnings
assets(4) 5.69%
Excluding capital securities:
- -----------------------------
Interest rate spread 4.94%
Contribution of interest free funds 0.88%
Net yield on interest-earnings
assets(4) 5.82%
</TABLE>
(1) Nonaccrual loans are excluded from the average balance and only collected
interest on accrual loans is included in the interest column.
(2) Loan fees totaling $4.3 million, $3.9 million and $4.0 million are
included in loan interest income for 1999, 1998 and 1997, respectively.
(3) Tax equivalent yields earned on the tax exempt securities are 7.17%,
7.23% and 6.38% for the years ended December 31, 1999, 1998 and 1997,
respectively, using the federal statutory rate of 34%.
(4) Net yield on interest-earning assets during the period equals (a) the
difference between interest income on interest-earning assets and the
interest expense on interest-bearing liabilities, divided by (b) average
interest-earning assets for the period.
The most significant impact on the Company's net interest income between
periods is derived from the interaction of changes in the volume of and rate
earned or paid on interest-earning assets and interest-bearing liabilities. The
volume of interest-earning asset dollars in loans and investments, compared to
the volume of interest-bearing liabilities represented by deposits and
borrowings, combined with the spread, produces the changes in the net interest
income between periods. The table below sets forth, for the years indicated, a
summary of the changes in average asset and liability balances (volume) and
changes in average interest rates (rate).
A-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
Compared with December 31, 1998
favorable (unfavorable)
-------------------------------------------------------
(Dollars in thousands) (1) (2) Volume Rate Net
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fed funds sold $ 2,842 $ (127) $ 2,715
Other short term securities (1,453) (171) (1,624)
Investment securities:
Taxable 1,135 2,149 3,284
Tax-exempt 1,248 (8) 1,240
Loans 44,743 (10,007) 34,736
------------------- --------------- ---------------
Total interest-earning assets 48,515 (8,164) 40,351
------------------- --------------- ---------------
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings 11,908 4 11,912
Time deposits, over $100,000 5,469 (496) 4,973
Other time deposits (441) 256 (185)
------------------- --------------- ---------------
Total interest-bearing deposits 16,936 (236) 16,700
Other borrowings (316) (569) (885)
Subordinated debt (276) (1) (277)
------------------- --------------- ---------------
Total interest-bearing liabilities 16,344 (806) 15,538
Increase (decrease) in net interest income $ 32,171 $ (7,358) $ 24,813
=================== =============== ===============
Year Ended December 31, 1998
Compared with December 31, 1997
favorable (unfavorable)
-------------------------------------------------------
(Dollars in thousands) (1) (2) Volume Rate Net
- --------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Fed funds sold $ 995 $ 53 $ 1,048
Other short term securities (48) 304 256
Investment securities:
Taxable 9,090 (464) 8,626
Tax-exempt 1,171 201 1,372
Loans 17,846 (1,169) 16,677
--------------- --------------- ---------------
Total interest-earning assets 29,054 (1,075) 27,979
--------------- --------------- ---------------
Interest-bearing liabilities:
Deposits:
MMDA, NOW and Savings 6,326 989 7,315
Time deposits, over $100,000 2,814 532 3,346
Other time deposits (359) (315) (674)
--------------- --------------- ---------------
Total interest-bearing deposits 8,781 1,206 9,987
Other borrowings 3,100 218 3,318
Subordinated debt - - -
--------------- --------------- ---------------
Total interest-bearing liabilities 11,881 1,424 13,305
--------------- --------------- ---------------
Increase (decrease) in net interest income $ 17,173 $ (2,499) $ 14,674
=============== =============== ===============
</TABLE>
(1) The change in interest income and expense not attributable to specific
volume and rate changes has been allocated proportionately between the
volume and rate changes.
(2) Excludes the impact of capital securities.
Interest income in 1999 increased 29.9% to $175.4 million from $135.0
million in 1998. This was primarily due to the significant increase in loans,
the Company's highest yielding interest-earning asset, and investment
securities. Loan volume increases were the result of the continuing economic
improvement in the Company's market areas, as well as the addition of
experienced relationship managers and significant business development efforts
by the Company's relationship managers. The increase was partially offset by a
decline in the yield earned on average interest-earning assets. Average
interest-earning assets increased $552.8 million, or 35.5%, to $2.1 billion in
1999, compared to $1.6 billion in 1998. Of this total increase, average loans
increased $481.3 million, or 48.7%, to $1.5 billion in 1999 from $989.0 million
in 1998. Investment securities, Federal funds sold and other short-term
securities, increased 12.6% to $641.5 million in 1999 from $569.9 million in
1998.
The average yield on interest-earning assets declined 36 basis points to
8.30% in 1999 from 8.66% in 1998 primarily due to a decline in the average yield
on loans which was caused by increased competition and the impact of the
Company's focus on slightly larger client credits that generally result in
improved client financial controls, but also result in tighter pricing. Loans
represented approximately 69.6% of total interest-earning assets in 1999
compared to 63.4% in 1998. The average yield on loans declined 101 basis points
to 9.31% in 1999 from 10.32% in 1998.
Interest expense, excluding capital securities, in 1999 increased 30.0% to
$67.3 million from $51.8 million in 1998. This increase was due to greater
volumes of interest-bearing liabilities coupled with slightly higher interest
rates paid on interest-bearing liabilities. Average interest-bearing liabilities
increased 36.0% to $1.7 billion in 1999 from $1.2 billion in 1998 due primarily
to the efforts of the Banks' relationship managers in generating core deposits
from their client relationships and the deposits derived from the activities of
the Greater Bay Trust Company and the Venture Banking Group.
A-5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
During 1999, average noninterest-bearing deposits increased to $374.8
million from $285.0 million in 1998. However, due to the larger increase in
interest-bearing deposits, noninterest-bearing deposits decreased to 18.8% of
total deposits at year-end 1999, compared to 19.7% at year-end 1998.
As a result of the foregoing, the Company's interest rate spread, excluding
capital securities, declined to 4.32% in 1999 from 4.49% in 1998, and the net
yield on interest-earning assets declined in 1999 to 5.11% from 5.34% in 1998.
Interest income increased 26.1% to $135.0 million in 1998 from $107.0
million in 1997, as a result of the increase in average interest-earning assets
offset by a decline in the yields earned. Average interest-earning assets
increased 32.4% to $1.6 billion in 1998 from $1.2 billion in 1997 principally as
a result of increase in loans. The yield on the higher volume of average
interest-earning assets declined 43 basis points to 8.66% in 1998 from 9.09% in
1997, primarily as a result of increased competition for loans.
Interest expense, excluding capital securities, in 1998 increased 34.6% to
$51.8 million from $38.5 million in 1997 primarily as a result of the increase
in volume of interest-bearing liabilities and in the rates paid on interest-
bearing liabilities. Corresponding to the growth in average interest-earning
assets, average interest-bearing liabilities increased 34.0% to $1.2 billion in
1998 from $927.3 million in 1997.
As a result of the foregoing, the Company's interest rate spread, excluding
capital securities, declined to 4.49% in 1998 from 4.94% in 1997 and the net
yield on interest-earning assets declined to 5.34% in 1998 from 5.82% in 1997.
The Company's net yield on interest-earning assets was reduced by the
Special Deposit. The average deposit balances related to the Special Deposit
during 1999, 1998 and 1997 were $99.0 million, $90.0 million and $95.0
million, respectively, on which the Company earned a spread of 3.1%, 2.25% and
2.5%, respectively. Excluding the Special Deposit, the 1999, 1998, 1997 net
yield on interest-earning assets, excluding capital securities, would have
been 5.21%, 5.53% and 6.11% respectively. The purchase of bank-owned life
insurance ("BOLI") also reduced the Company's net interest spread since the
earnings of BOLI are included in other income, while the cost of funding BOLI
is included in interest expense.
The Company incurred certain client service expenses with respect to its
noninterest-bearing liabilities. These expenses include messenger services,
check supplies and other related items and are included in operating expenses.
If these expenses had included in interest expense, the Company's net yield on
interest-earning assets would have been as follows for each of the years
presented.
A-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average noninterest bearing demand deposits $ 374,803 $ 285,028 $ 215,785
Client service expenses 1,244 656 545
Client service expenses, as a percentage of
average noninterest bearing demand deposits 0.33% 0.23% 0.25%
IMPACT ON NET YIELD ON INTEREST-EARNING ASSETS:
Net yield on interest-earning assets 5.11% 5.34% 5.82%
Impact of client service expense (0.05)% (0.05)% (0.05)%
----------------------------------------------
Adjusted net yield on interest-earning assets 5.06% 5.29% 5.77%
==============================================
</TABLE>
The impact on the net yield on interest-earning assets is determined by
offsetting net interest income by the cost of client service expense, which
reduces the yield on interest-earning assets. The cost for client service
expense reflects the Company's efforts to manage its client service expenses.
Provision for Loan Losses
The provision for loan losses represents the current period credit cost
associated with maintaining an appropriate allowance for credit losses. The loan
loss provision for each period is dependent upon many factors, including loan
growth, net charge-off, changes in the composition of the loan portfolio,
delinquencies, management's assessment of the quality of the loan portfolio, the
value of the underlying collateral on problem loans and the general economic
conditions in the Company's market area. Periodic fluctuations in the provision
for loan losses result from management's assessment of the adequacy of the
allowance for loan losses; however, actual loan losses may vary from current
estimates.
Refer to the section "FINANCIAL CONDITION - Allowance for Loan Losses" for
a description of the systematic methodology employed by the Company in
determining an adequate allowance for loan losses.
The provision for loan losses in 1999 was $12.2 million, compared to $6.4
million in 1998 and $7.1 million in 1997. In addition, in connection with the
mergers, the Company made an additional provision for loan losses of $2.7
million, $183,000 and $1.4 million in 1999, 1998 and 1997, respectively, to
conform to the Company's allowance methodology. Although loans outstanding have
increased substantially, nonperforming loans, comprised of nonaccrual loans,
restructured loans, and accruing loans past due 90 days or more have remained
relatively low, totaling $5.2 million, or 0.29% of loans outstanding, at
December 31, 1999, from $2.8 million, or 0.23% of loans outstanding, at December
31, 1998 and $5.5 million, or 0.60% of loans outstanding, at December 31, 1997.
For further information on nonperforming and classified loans and the
allowance for loan losses, see--"Nonperforming and Classified Assets" herein.
A-7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Other Income
Total other income increased to $31.8 million in 1999, compared to $10.7
million in 1998 and $10.0 million in 1997. The following table sets forth
information by category of other income for the years indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust fees $ 2,990 $ 2,473 $ 2,049
Service charges and other fees 2,711 2,056 2,100
Loan and international banking fees 2,833 1,303 1,404
ATM network revenue 2,110 1,966 2,057
Gain on sale of SBA loans 1,010 1,125 940
Gain (loss) on investments, net (19) 374 (8)
Other income 5,684 419 325
------------------------------------------
Total, recurring 17,319 9,716 8,867
Warrant income 14,508 945 1,162
------------------------------------------
Total $ 31,827 $ 10,661 $ 10,029
==========================================
</TABLE>
The increase in other income in 1999 was a result of $1.5 million increase
in loan and international banking fees, a $655,000 increase in service charges
and other fees, and a $517,000 increase in trust fees. These increases were a
result of significant growth in total loans, total deposits and trust assets.
Other income includes $4.0 million in appreciation recognized on the conversion
of equity securities received in the settlement of a loan into a publicly traded
equity security. As discussed further below, the warrant income resulted from
the sale of stock acquired from clients in connection with financing activities.
The increase in other income in 1998 was primarily the result of a $424,000
increase in trust fees, and a $185,000 increase in the gain on sale of Small
Business Administration ("SBA") loans. The increase in trust fees was due to
significant growth in assets under management by Greater Bay Trust Company.
Trust assets increased to $649.3 million at December 31, 1998, compared to
$577.7 million at December 31, 1997. The increase in the gain on sale of SBA
loans was due to an increase in the origination and subsequent sale of SBA
loans.
Other income in 1999, 1998 and 1997 included warrant income of $14.5
million, $945,000 and $1.2 million net of related employee incentives of $7.3
million, $396,000 and $500,000, respectively. The Company occasionally
receives warrants to acquire common stock from companies that are in the start-
up or development phase. The Company holds approximately 100 warrant
positions. The timing and amount of income derived from the exercise and sale
of client warrants typically depend upon factors beyond the control of the
Company, and cannot be predicted with any degree of accuracy and are likely to
vary materially from period to period.
In November 1999, the voters of San Francisco adopted an ordinance which
prohibits financial institutions in San Francisco from imposing surcharges of
any kind to non-customers who access automated teller machines ("ATM") to
conduct electronic transactions, including cash withdrawals and fund transfers.
Other cities in California have either adopted or are considering similar
proposals. The Company estimates that approximately $230,000 of ATM network
revenue during 1999 was derived from such type of surcharges in the City and
County of San Francisco. While the implementation of this ordinance has been
delayed through legal challenges and this amount is not material, the successful
adoption of similar laws in other areas where the Company operates ATMs could
cause a more substantial reduction in ATM network revenue in the future.
A-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Operating Expenses
The following table sets forth the major components of operating expenses
for the years indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation and benefits $ 35,316 $ 28,822 $ 25,833
Occupancy and equipment 11,256 7,859 6,892
Professional services and legal costs 2,188 2,447 2,523
Client service expenses 1,224 656 545
FDIC insurance and regulatory assessments 491 400 361
Expenses on other real estate owned 13 76 177
Other 10,671 10,492 9,233
----------------------------------------------
Total operating expenses excluding
nonrecurring costs 61,159 50,752 45,564
Contribution to the GBB Foundation and related expenses 12,160 1,341 -
Mergers and other related nonrecurring costs 10,331 2,661 3,333
Recovery of legal settlement - - (1,700)
----------------------------------------------
Total operating expenses $ 83,650 $ 54,754 $ 47,197
==============================================
Efficiency ratio 61.71% 60.17% 61.23%
Efficiency ratio (before merger, nonrecurring
and extraordinary items) 50.52% 56.34% 60.02%
Total operating expenses to average assets 3.68% 3.25% 3.73%
Total operating expenses to average assets (before
merger, nonrecurring and extraordinary items) 2.69% 3.01% 3.60%
</TABLE>
A-9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Operating expenses totaled $83.6 million for 1999, compared to $54.8
million for 1998 and $47.2 million for 1997. The ratio of operating expenses to
average assets was 3.68% in 1999, 3.25% in 1998, and 3.73% in 1997. Total
operating expenses include merger and other related nonrecurring costs and
contributions to the Greater Bay Bancorp Foundation (the "Foundation") and
related expenses. Excluding these items, operating expense to average assets
would have been 2.69% in 1999, 3.01% in 1998 and 3.60% in 1997.
The efficiency ratio is computed by dividing total operating expenses by
net interest income and other income. An increase in the efficiency ratio
indicates that more resources are being utilized to generate the same
(or greater) volume of income while a decrease would indicate a more efficient
allocation of resources. The Company's efficiency ratio before merger,
nonrecurring and extraordinary items for 1999 was 50.52%, compared to 56.34% in
1998 and 60.02% in 1997.
During 1998, Greater Bay established the Foundation. The Foundation was
formed to provide a vehicle through which the Company, its officers and
directors can provide support to the communities in which the Company does
business. The Foundation focuses its support on initiatives related to
education, health and economic growth. To support the Foundation, the Company
contributed appreciated securities, which had an unrealized gain of $7.8 million
in 1999 and $1.3 million in 1998. In 1999, the Company incurred $4.4 million in
compensation and other expenses in connection with these appreciated securities.
The Company recorded expense of $12.2 million in 1999 and $1.3 million in 1998
which is included in operating expenses.
As indicated by the improvements in the efficiency ratio, the Company has
been able to achieve increasing economies of scale. In 1999, average assets
increased 35% from 1998, while operating expenses, excluding nonrecurring cost,
increased only 21%. From 1997 to 1998, average assets increased 33%, while
operating expenses, excluding nonrecurring costs increased only 16%.
Compensation and benefits expenses increased in 1999 to $35.3 million,
compared to $28.8 million in 1998 and $25.8 million in 1997. The increase in
compensation and benefits is due primarily to the additions in personnel made in
1999 and 1998 to accommodate the growth of the Company.
The increase in occupancy and equipment, client service expense, Federal
Deposit Insurance Corporation ("FDIC") insurance and regulatory assessments and
other operating expenses was related to the growth in the Company's loans,
deposits and trust assets.
Income Taxes
The Company's effective income tax rate for 1999 was 29.9%, compared to
32.5% in 1998 and 36.5% in 1997. The effective rates were lower than the
statutory rate of 42% due to the donation of appreciated securities to the
Foundation, state enterprise zone tax credits, and tax-exempt income on
municipal securities. The reductions were partially offset by the impact of
non deductible merger and other related nonrecurring costs. In 1998, the
Company was able to further reduce its effective tax rate through the
recognition of certain net operating losses acquired in its merger with PRB.
FINANCIAL CONDITION
Total assets increased 39.4% to $2.6 billion at December 31, 1999, compared
to $1.9 billion at December 31, 1998. Total assets increased 29.3% in 1998 from
$1.5 billion at December 31, 1997. The increases in 1999 and 1998 were primarily
due to increases in the Company's loan portfolio funded by growth in deposits.
A-10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Loans
Total gross loans increased 45.0% to $1.8 billion at December 31, 1999,
compared to $1.2 billion at December 31, 1998. Total gross loans increased 32.7%
in 1998 from $914.2 million at year-end 1997. The increases in loan volumes in
1999 and 1998 were primarily due to an improving economy in the Company's market
areas coupled with the business development efforts by the Company's
relationship managers.
The Company's loan portfolio is concentrated in commercial (primarily
manufacturing, service and technology) and real estate lending, with the balance
in consumer loans. While no specific industry concentration is considered
significant, the Company's lending operations are located in a market area that
is dependent on the technology and real estate industries and supporting service
companies. Thus, a downturn in these sectors of the economy could adversely
impact the Company's borrowers. This could, in turn, reduce the demand for loans
and adversely impact the borrowers' abilities to repay their loans, while also
decreasing the Company's net interest margin.
The following table presents the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------
(Dollars in thousands) Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 758,148 44.2% $ 501,106 42.3% $ 396,448 44.5%
Term Real Estate - Commercial 431,226 25.1 316,328 26.7 225,089 25.3
---------------------------------------------------------------------------
Total Commercial 1,189,374 69.3 817,434 69.0 621,537 69.8
Real estate construction and land 372,481 21.7 230,568 19.5 149,960 16.8
Real estate other 92,688 5.4 74,265 6.3 51,765 5.8
Consumer and other 105,457 6.2 91,239 7.7 90,897 10.2
---------------------------------------------------------------------------
Total loans, gross 1,760,000 102.6 1,213,506 102.5 914,159 102.6
Deferred fees and discounts, net (6,681) (0.4) (4,395) (0.4) (3,892) (0.4)
---------------------------------------------------------------------------
Total loans, net of deferred fees 1,753,319 102.2 1,209,111 102.1 910,267 102.1
Allowance for loan losses (38,035) (2.2) (24,359) (2.1) (19,032) (2.1)
---------------------------------------------------------------------------
Total loans, net $ 1,715,284 100.0% $ 1,184,752 100.0% $ 891,235 100.0%
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------
1996 1995
--------------------------------------------------
(Dollars in thousands) Amount % Amount %
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 333,735 47.8% $ 248,212 49.2%
Term Real Estate - Commercial 162,908 23.3 127,228 25.2
--------------------------------------------------
Total Commercial 496,643 71.1 375,440 74.4
Real estate construction and land 118,367 16.9 65,773 13.0
Real estate other 37,466 5.4 29,260 5.8
Consumer and other 62,395 8.9 46,545 9.2
--------------------------------------------------
Total loans, gross 714,871 102.3 517,018 102.4
Deferred fees and discounts, net (3,616) (0.5) (3,064) (0.6)
--------------------------------------------------
Total loans, net of deferred fees 711,255 101.8 513,954 101.8
Allowance for loan losses (12,600) (1.8) (9,181) (1.8)
--------------------------------------------------
Total loans, net $ 698,655 100.0% $ 504,773 100.0%
===================================================
</TABLE>
The following table presents the maturity distribution of the Company's (1)
commercial, (2) real estate construction and land, (3) term real estate -
commercial and (4) real estate other portfolios and the sensitivity of such
loans to changes in interest rates at December 31, 1999.
<TABLE>
<CAPTION>
Term Real estate
real estate- construction Real estate
(Dollars in thousands) Commercial commercial and land other
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans maturing in:
One year or less:
Fixed rate $ 170,150 $ 21,210 $ 19,989 $ 7,428
Variable rate 329,992 24,023 301,941 21,201
One to five years:
Fixed rate 52,931 17,804 1,124 1,344
Variable rate 128,605 66,955 24,742 26,910
After five years:
Fixed rate 23,857 201,946 3,125 7,337
Variable rate 52,613 99,288 21,560 28,468
--------------------------------------------------------
Total $ 758,148 $ 431,226 $ 372,481 $ 92,688
========================================================
</TABLE>
A-11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Nonperforming and Classified Assets
Management generally places loans on nonaccrual status when they become 90
days past due, unless they are well secured and in the process of collection.
When a loan is placed on nonaccrual status, any interest previously accrued but
not collected is generally reversed from income. Loans are charged off when
management determines that collection has become unlikely. Restructured loans
are those where the Banks have granted a concession on the interest paid or
original repayment terms due to financial difficulties of the borrower. Other
real estate owned ("OREO") consists of real property acquired through
foreclosure on the related collateral underlying defaulted loans.
The following table sets forth information regarding nonperforming assets
at the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Nonaccrual loans $ 4,333 $ 2,033 $ 3,784 $ 6,255 $ 5,303
Accruing loans past due 90 days or more 10 - 158 1,698 954
Restructured loans 807 796 1,533 1,828 1,530
---------------------------------------------------------------------------
Total nonperforming loans 5,150 2,829 5,475 9,781 7,787
Other real estate owned 271 966 1,429 1,673 2,830
---------------------------------------------------------------------------
Total nonperforming assets $ 5,421 $ 3,795 $ 6,904 $ 11,454 $ 10,617
===========================================================================
Nonperforming assets to total loans
and other real estate owned 0.31% 0.31% 0.76% 1.61% 2.05%
Nonperforming assets to total assets 0.21% 0.20% 0.47% 1.02% 1.25%
</TABLE>
At December 31, 1999, the Company had $4.3 million in nonaccrual loans.
Interest income foregone on nonperforming loans totaled $234,000, $123,000 and
$571,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company records OREO at the lower of carrying value or fair value less
estimated costs to sell. Estimated losses that result from the ongoing periodic
valuation of these properties are charged to earnings through a provision for
losses on foreclosed property in the period in which they are identified. At
December 31, 1999, OREO acquired through foreclosure had a carrying value of
$271,000 compared to $966,000 at December 31, 1998.
The Company had $807,000 and $796,000 of restructured loans as of December
31, 1999 and 1998, respectively. There were no principal reduction concessions
allowed on restructured loans during 1999 and 1998. Interest income from
restructured loans totaled $45,000 and $16,000 for the years ended December 31,
1999 and 1998. Foregone interest income, which totaled $0 and $11,000 for the
years ended December 31, 1999 and 1998, respectively, would have been recorded
as interest income if the loans had accrued interest in accordance with their
original terms prior to the restructurings.
The Company has three classifications for problem loans: "substandard",
"doubtful" and "loss". Substandard loans have one or more defined weakness and
are characterized by the distinct possibility that the Banks will sustain some
loss if the deficiencies are not corrected. Doubtful loans have the weaknesses
of substandard loans with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable; and there is a high possibility of loss of
some portion of the principal balance. A loan classified as "loss" is considered
uncollectible and its continuance as an asset is not warranted.
A-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table sets forth the classified loans and other real estate
owned at the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Substandard $ 23,258 $ 13,487 $ 16,506
Doubtful 1,845 1,188 1,894
Loss - - 49
Other real estate owned 271 966 1,429
-----------------------------------------
Classified assets $ 25,374 $ 15,641 $ 19,878
=========================================
Classified to total loans and other real
estate owned 1.45% 1.29% 2.18%
Allowance for loan losses to total classified 149.90% 155.74% 95.74%
</TABLE>
With the exception of these classified loans, management was not aware of
any loans outstanding as of December 31, 1999 where the known credit problems of
the borrower would cause management to have serious doubts as to the ability of
such borrowers to comply with their present loan repayment terms and which would
result in such loans being included in nonperforming or classified asset tables
at some future date. Management cannot, however, predict the extent to which
economic conditions in the Company's market areas may worsen or the full impact
that such an environment may have on the Company's loan portfolio. Accordingly,
there can be no assurance that other loans will not become 90 days or more past
due, be placed on nonaccrual, become restructured loans, or other real estate
owned in the future.
Allowance For Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of risk inherent in the Company's loan
portfolio. The allowance is increased by provisions charged against current
earnings and reduced by net charge-offs. Loans are charged off when they are
deemed to be uncollectible; recoveries are generally recorded only when cash
payments are received.
A-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table sets forth information concerning the Company's
allowance for loan losses at the dates and for the years indicated.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period end loans outstanding $ 1,760,000 $ 1,213,506 $ 914,159 $ 714,871 $ 517,018
Average loans outstanding 1,468,427 $ 988,968 $ 807,676 $ 594,195 482,067
Allowance for loan losses:
Balance at beginning of period $ 24,359 $ 19,032 $ 12,600 $ 9,181 $ 9,221
Charge-offs:
Commercial (2,359) (1,419) (1,576) (718) (1,187)
Term Real Estate - Commercial - (48) (54) (84) (25)
----------------------------------------------------------------------------
Total Commercial (2,359) (1,467) (1,630) (802) (1,212)
Real estate construction and land - (7) (243) (127) (410)
Real estate other - - - - -
Consumer and other (260) (196) (232) (202) (485)
----------------------------------------------------------------------------
Total charge-offs (2,619) (1,670) (2,105) (1,131) (2,107)
----------------------------------------------------------------------------
Recoveries:
Commercial 909 399 92 390 621
Term Real Estate - Commercial - 11 1 27 -
----------------------------------------------------------------------------
Total Commercial 909 410 93 417 621
Real estate construction and land - - - 283 3
Real estate other 56 - - - -
Consumer and other 336 35 15 21 169
----------------------------------------------------------------------------
Total recoveries 1,301 445 108 721 793
----------------------------------------------------------------------------
Net charge-offs (1,318) (1,225) (1,997) (410) (1,314)
Provision charged to income (1) 14,994 6,552 8,429 3,829 1,274
----------------------------------------------------------------------------
Balance at end of period $ 38,035 $ 24,359 $ 19,032 $ 12,600 $ 9,181
===========================================================================
Net charge-offs to average loans outstanding
during the period 0.10% 0.15% 0.25% 0.07% 0.26%
Allowance as a percentage of average loans
outstanding 2.59% 2.46% 2.36% 2.12% 1.90%
Allowance as a percentage of period end loans
outstanding 2.17% 2.01% 2.13% 1.79% 1.80%
Allowance as a percentage of non-performing loans 738.54% 861.05% 347.62% 128.82% 117.90%
</TABLE>
(1) Includes $2.7 million, $183,000, $1.4 million and $800,000 in 1999, 1998,
1997 and 1996, respectively, to conform to the Companys' allowance
methodology. These amounts are included in mergers and related nonrecurring
costs.
The Company employs a systematic methodology for determining its allowance
for loan losses, which includes a monthly review process and monthly adjustment
of the allowance. The Company's process includes a periodic loan by loan review
for loans that are individually evaluated for impairment as well as a detailed
reviews of other loans (either individually or in pools). This includes an
assessment of known problem loans, potential problem loans, and other loans that
exhibit indicators of deterioration.
The Company's methodology incorporates a variety of risk considerations,
both quantitative and qualitative, in establishing an allowance for loan losses
that management believes is appropriate at each reporting date. Quantitative
factors include the Company's historical loss experience, delinquency and
charge-off trends, collateral values, changes in non-performing loans, and other
factors. Quantitative factors also incorporate known information about
individual loans including borrowers' sensitivity to interest rate movements and
borrowers' sensitivity to quantifiable external factors including commodity and
finished goods prices as well as acts of nature (earthquakes, fires, etc.) that
occur in a particular period.
Qualitative factors include the general economic environment in the
Company's marketplace, and in particular, the state of the technology industries
based in the Silicon Valley and other key industries in the San Francisco Bay
Area. Size and complexity of individual credits in relation to lending officers'
background and experience levels, loan structure, extent and nature of waivers
of existing loan policies and pace of portfolio growth are other qualitative
factors that are considered in the Company's methodology.
The Company's methodology is, and has been consistently followed. However,
as the Company adds new products, increases in complexity, and expands its
geographic coverage, the Company will enhance its methodology to keep pace with
the size and complexity of the loan portfolio. In this regard, the Company has
periodically engaged outside firms to independently assess the Company's
methodology, and on an ongoing basis the Company engages outside firms to
perform independent credit reviews of its loan portfolio. Management believes
that Company's systematic methodology continues to be appropriate given the
Company's size and level of complexity.
While this methodology utilizes historical and other objective information,
the establishment of the allowance for loan losses and the classification of
loans, is to some extent, based on the judgment and experience of management. In
general, management feels that the allowance for loan losses is adequate as of
December 31, 1999. However, future changes in circumstances, economic conditions
of other factors could cause management to increase or decrease the allowance
for loan losses as necessary.
The following table provides a summary of the allocation of the allowance
for loan losses for specific loan categories at the dates indicated. The
allocation presented should not be interpreted as an indication that charges to
the allowance for loan losses will be incurred in these amounts or proportions,
or that the portion of the allowance allocated to each loan category represents
the total amounts available for charge-offs that may occur within these
categories. The unallocated portion of the allowance for loan losses and the
total allowance is applicable to the entire loan portfolio.
A-14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------
% of Category % of Category % of Category
to Gross to Gross to Gross
(Dollars in thousands) Amount Loans Amount Loans Amount Loans
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $13,873 43.08% $ 9,662 41.29% $ 6,578 43.37%
Term Real Estate - Commercial 5,963 24.50 2,009 26.07 1,598 24.62
---------------------------------------------------------------------------------
Total Commercial 19,836 67.58 11,671 67.36 8,176 67.99
Real estate construction and land 3,354 21.16 2,222 19.00 1,383 16.40
Real estate term 370 5.27 411 6.12 327 5.66
Consumer and other 3,048 5.99 1,749 7.52 985 9.94
---------------------------------------------------------------------------------
Total allocated 26,608 16,053 10,871
Unallocated 11,427 8,306 8,161
---------------------------------------------------------------------------------
Total $38,035 100.00% $24,359 100.00% $19,032 100.00%
=================================================================================
<CAPTION>
---------------------------------------------------------
1996 1995
---------------------------------------------------------
% of Category % of Category
to Gross to Gross
(Dollars in thousands) Amount Loans Amount Loans
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 4,749 46.68% $3,361 48.01%
Term Real Estate - Commercial 1,253 22.79 1,271 24.61
-------------------------------------------------------
Total Commercial 6,002 69.47 4,632 72.62
Real estate construction and land 1,924 16.56 1,212 12.72
Real estate term 257 5.24 260 5.66
Consumer and other 1,288 8.73 962 9.00
-------------------------------------------------------
Total allocated 9,471 7,066
Unallocated 3,129 2,115
-------------------------------------------------------
Total $12,600 100.00% $9,181 100.00%
=======================================================
</TABLE>
A-15
<PAGE>
At December 31, 1999, the allowance for loan losses was $38.0 million,
consisting of a $26.6 million allocated allowance and a $11.4 million
unallocated allowance. The unallocated allowance recognizes the model and
estimation risk associated with the allocated allowances, and management's
evaluation of various conditions, the effects of which are not directly measured
in determining the allocated allowance. The evaluation of the inherent loss
regarding these conditions involves a higher degree of uncertainty because they
are not identified with specific problem credits or portfolio segments. The
conditions evaluated in connection with the unallocated allowance include the
following at the balance sheet date:
. The strength and duration of the current business cycle and existing general
economic and business conditions affecting our key lending areas; economic
and business conditions affecting our key lending portfolios;
. Seasoning of the loan portfolio, growth in loan volumes and changes in loan
terms; and
. The results of bank regulatory examinations.
A-16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Investment Securities
The Company's investment portfolio is managed to meet the Company's
liquidity needs through proceeds from scheduled maturities and is utilized for
pledging requirements for deposits of state and political subdivisions and
securities sold under repurchase agreements. The portfolio is comprised of U.S.
Treasury securities, U.S. government agency securities, mortgage-backed
securities, obligations of states and political subdivisions and a modest amount
of equity securities, including Federal Reserve Bank stock and Federal Home Loan
Bank stock. The Company does not include Federal Funds sold and certain other
short-term securities as investment securities. These other investments are
included in cash and cash equivalents. Investment securities classified as
available for sale are recorded at fair value, while investment securities
classified as held to maturity are recorded at cost. Unrealized gains or losses,
net of the deferred tax effect, are reported as increases or decreases in
shareholders' equity for available for sale securities.
The amortized cost and estimated fair value of investment securities at
December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Gross Gross
As of December 31, 1999 Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations $ 6,151 $ - $ (65) 6,086
U.S. agency notes 16,784 - (641) 16,143
Mortgage-backed securities 168,733 - (4,946) 163,787
Tax-exempt securities 33,428 53 (2,186) 31,295
Corporate securities 101,469 - (10,940) 90,529
------------------------------------------------------------
Total securities available for sale 326,565 53 (18,778) 307,840
------------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations 500 - - 500
U.S. agency notes 29,482 - (667) 28,815
Mortgage-backed securities 59,524 28 (2,018) 57,534
Tax-exempt securities 52,219 123 (2,710) 49,632
------------------------------------------------------------
Total securities held to maturity 141,725 151 (5,395) 136,481
------------------------------------------------------------
Other securities 12,397 8,143 - 20,540
------------------------------------------------------------
Total investment securities $ 480,687 $ 8,347 $ (24,173) $ 464,861
============================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
As of December 31, 1998 Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations $ 4,408 $ 26 $ - $ 4,434
U.S. agency notes 31,125 23 (8) 31,140
Mortgage-backed securities 164,578 1,081 (81) 165,578
Tax-exempt securities 32,952 563 - 33,515
Corporate securities 55,168 60 (604) 54,624
------------------------------------------------------------
Total securities available for sale 288,231 1,753 (693) 289,291
------------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations 1,764 2 (2) 1,764
U.S. agency notes 28,495 22 (58) 28,459
Mortgage-backed securities 37,967 174 (207) 37,934
Tax-exempt securities 33,882 1,004 (15) 34,871
------------------------------------------------------------
Total securities held to maturity 102,108 1,202 (282) 103,028
------------------------------------------------------------
Other securities 6,013 - - 6,013
-------------------------------------------------------------
Total investment securities $ 396,352 $ 2,955 $ (975) $ 398,332
============================================================
</TABLE>
A-17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The declines in fair value of the Company's investment portfolio are a
result of the increase in overall interest rates which occurred throughout
1999.
The maturities of investment securities at December 31, 1999 and 1998 is
as follows. Other securities are comprised of equity investments and have no
stated maturity and therefore are excluded from this table.
<TABLE>
<CAPTION>
2001 2005
Through Through 2010 and
(Dollars in thousands) 2000 2004 2009 Thereafter Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations $ 100 $ 6,051 $ - $ - $ 6,151
U.S. agency notes (1) - 7,002 9,783 - 16,785
Mortgage-backed securities (2) 1,023 6,882 5,734 155,094 168,734
Tax-exempt securities 211 3,197 2,646 27,374 33,427
Corporate securities 996 - - 100,474 101,470
--------------------------------------------------------------------------
Total securities available for sale 2,330 23,132 18,163 282,942 326,567
--------------------------------------------------------------------------
Fair value $ 2,303 $ 22,827 $ 17,512 $ 265,197 $ 307,839
--------------------------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations 500 - - - 500
U.S. agency notes (1) 2,000 23,993 3,490 - 29,483
Mortgage-backed securities (2) 75 2,082 9,082 48,285 59,524
Tax-exempt securities 996 3,130 11,670 36,422 52,218
--------------------------------------------------------------------------
Total securities held to maturity 3,571 29,205 24,242 84,706 141,725
--------------------------------------------------------------------------
Fair value 3,564 28,616 23,661 80,640 136,481
--------------------------------------------------------------------------
COMBINED INVESTMENT SECURITIES PORTFOLIO:
Total investment securities $ 5,901 $ 52,338 $ 42,405 $ 367,648 $ 468,292
--------------------------------------------------------------------------
Total fair value $ 5,867 $ 51,443 $ 41,173 $ 345,837 $ 444,320
--------------------------------------------------------------------------
Weighted average yield-total portfolio 5.78% 5.99% 6.78% 7.35% 7.12%
</TABLE>
(1) Certain notes issued by U.S. Agencies may be called, without penalty, at
the discretion of the issuer. This may cause the actual maturities to
differ significantly from the contractual maturity dates.
(2) Mortgage-backed securities are shown at contractual maturity; however, the
average life of these mortgage-backed securities may differ due to
principal prepayments.
For additional information concerning the investments portfolio, see Note 3
of Notes to Consolidated Financial Statements.
Deposits
The Company emphasizes developing total client relationships with its
customers in order to increase its core deposit base. Deposits reached $2.3
billion at December 31, 1999, an increase of 43.6% compared to deposits of $1.6
billion at December 31, 1998. In 1998, deposits increased 25.2% from $1.3
billion at December 31, 1997. The increase in deposits was primarily due to the
continued marketing efforts directed at commercial business clients in the
Company's market areas, coupled with an increase in deposits related to the new
business development activities of the Greater Bay Trust Company and the Venture
Banking Group.
A-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
PBC held deposits from a single customer (the "Special Deposit") of $111.1
million and $89.6 million at December 31, 1999 and 1998, respectively. The
Special Deposit represents the proposed settlement of a class action lawsuit not
involving the Company. Due to the uncertainty of the time the Special Deposit
will remain with PBC, management has invested a significant portion of the
proceeds from this deposit in agency securities with maturities of less than 90
days. As previously discussed, the interest rate spread on the Special Deposit
was approximately 3.10% and 2.25% for December 31, 1999 and 1998, which resulted
in a decrease in overall interest rate spreads.
The Company's noninterest-bearing demand deposit accounts increased 36.8%
to $459.5 million at December 31, 1999, compared to $336.0 million a year
earlier.
Money market deposit accounts ("MMDA"), negotiable order of withdrawal
accounts ("NOW") and savings accounts reached $1.4 billion at year-end 1999, an
increase of 41.5% from $960.2 million at December 31, 1998. MMDA, NOW and
savings accounts were 59.1% of total deposits at December 31, 1999, as compared
to 59.9% at December 31, 1998.
Time certificates of deposit totaled $482.6 million, or 20.97% of total
deposits, at December 31, 1999, compared to $306.3 million, or 19.11% of total
deposits, at December 31, 1998. Note 7 of the Notes to the Consolidated
Financial Statements presents the maturity distribution of time certificates of
deposits at December 31, 1999.
As of December 31, 1999, the Company had $19.3 million in brokered deposits
outstanding. There were no such deposits as of December 31, 1998.
For additional information concerning deposits, see Note 7 of Notes to
Consolidated Financial Statements.
Other Borrowings
At December 31, 1999 other borrowings consisted of Federal Funds purchased
and securities sold under agreements to repurchase, Federal Home Loan Bank
advances, and advances under credit lines. Note 9 of the Notes to the
Consolidated Financial Statements provides the amounts outstanding, the short
and long term classification, other borrowings outstanding during the year and
the general terms of these borrowings.
Liquidity and Cash Flow
The objective of liquidity management is to maintain each Bank's ability to
meet the day-to-day cash flow requirements of its clients who either wish to
withdraw funds or require funds to meet their credit needs. The Company must
manage its liquidity position to allow the Banks to meet the needs of their
clients while maintaining an appropriate balance between assets and liabilities
to meet the return on investment expectations of its shareholders. The Company
monitors the sources and uses of funds on a daily basis to maintain an
acceptable liquidity position. In addition to liquidity from core deposits and
repayments and maturities of loans and investments, the Banks utilize brokered
deposit lines, sell securities under agreements to repurchase and borrows
overnight Federal Funds.
A-19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Greater Bay is a company separate and apart from the Banks. It must provide
for its own liquidity. Substantially all of Greater Bay's revenues are obtained
from management fees, interest received on its investments and dividends
declared and paid by the Banks. There are statutory and regulatory provisions
that could limit the ability of the Banks to pay dividends to Greater Bay. At
December 31, 1999, the Banks had approximately $50.8 million in the aggregate
available to be paid as dividends to Greater Bay. Management of Greater Bay
believes that such restrictions will not have an impact on the ability of
Greater Bay to meet its ongoing cash obligations. As of December 31, 1999,
Greater Bay did not have any material commitments for capital expenditures.
Net cash provided by operating activities, consisting primarily of net
income, totaled $32.3 million for 1999, $20.7 million for 1998 and $21.5 million
for 1997. Cash used for investing activities totaled $635.3 million in 1999,
$458.6 million in 1998 and $295.9 million in 1997. The funds used for investing
activities primarily represent increases in loans and investment securities for
each year reported.
For the year ended December 31, 1999, net cash provided by financing
activities was $700.5 million, compared to $398.8 million in 1998 and $315.6
million in 1997. Historically, the primary financing activity of the Company has
been through deposits. In 1999, 1998 and 1997, deposit gathering activities
generated cash of $698.5 million, $322.6 million and $282.3 million,
respectively. This represents a total of 99.7%, 80.9% and 89.34% of the
financing cash flows for 1999, 1998 and 1997, respectively. The 1999 increase
in financing activities other than deposits are a result of proceeds from the
sale of stock of $25.4 million, the Company entering into $70.0 million in
long-term low cost repurchase agreements in 1998, and the issuance of TPS of
$30.0 million and $20.0 million in 1999 and 1998, respectively, which were
issued principally to provide capital to the Company (see Capital Resources -
below).
Capital Resources
Shareholders' equity at December 31, 1999 increased to $160.8 million from
$118.4 million at December 31, 1998 and from $98.7 million at December 31, 1997.
Greater Bay paid dividends of $0.48, $0.38 and $0.30 per share in December 31,
1999, 1998 and 1997, respectively, excluding dividends paid by subsidiaries
prior to the completion of their mergers.
In 1999 the Company issued 535,000 shares of stock in a private placement.
The proceeds from the offering were $19.0 million, net of issuance costs.
Greater Bay intends to use the net proceeds from the offering for general
corporate purposes.
In 1997 the Company issued $20.0 million in TPS to enhance its regulatory
capital base, while also providing added liquidity. In 1998, the Company
completed a second offering of TPS in an aggregate amount of $30.0 million.
Under applicable regulatory guidelines, the TPS qualifies as Tier I capital up
to a maximum 25% of Tier I capital. Any additional portion of TPS would qualify
as Tier 2 capital. As of December 31, 1999, all outstanding TPS qualified as
Tier I capital. As the Company's shareholders' equity increases, the amount of
Tier I capital that can be comprised of TPS will increase.
The Company is committed to remaining well-capitalized as defined by
regulatory guidelines. If deposit and loan growth continues at current levels,
it is anticipated the Company will need to raise additional capital to remain
well-capitalized in 2000. The Company is evaluating an additional issuance of
TPS as well as other alternatives to meet this anticipated increase in required
capital. We anticipate that we will be able to leverage any further issuance of
TPS and therefore we do not anticipate that the raising of additional TPS would
be dilutive to future net income per share. However, the impact of raising any
additional capital on net income per share will depend on the type of capital
raised, the terms of the capital, the time period required to invest the capital
funds into earning-assets and the type of assets funded.
A-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
A banking organization's total qualifying capital includes two components:
core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core
capital, which must comprise at least half of total capital, includes common
shareholders' equity, qualifying perpetual preferred stock, trust preferred
securities and minority interests, less goodwill. Supplementary capital includes
the allowance for loan losses (subject to certain limitations), other perpetual
preferred stock, trust preferred securities, certain other capital instruments
and term subordinated debt. The Company's major capital components are
shareholders' equity and TPS in core capital, and the allowance for loan losses
and subordinated debt in supplementary capital.
At December 31, 1999, the minimum risk-based capital requirements to be
considered adequately capitalized were 4.0% for core capital and 8.0% for total
capital. Federal banking regulators have also adopted leverage capital
guidelines to supplement risk-based measures. The leverage ratio is determined
by dividing Tier 1 capital as defined under the risk-based guidelines by average
total assets (not risk-adjusted) for the preceding quarter. The minimum leverage
ratio is 3.0%, although certain banking organizations are expected to exceed
that amount by 1.0% or more, depending on their circumstances.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991, the Federal Reserve, the OCC and the FDIC have adopted regulations setting
forth a five-tier system for measuring the capital adequacy of the financial
institutions they supervise. The capital levels of the Company at December 31,
1999 and the two highest levels recognized under these regulations are as
follows:
<TABLE>
<CAPTION>
Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Ratio Capital Ratio
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Company 7.93% 9.35% 10.81%
Well-capitalized 5.00% 6.00% 10.00%
Adequately
capitalized 4.00% 4.00% 8.00%
</TABLE>
The Company's leverage ratio was 7.93% at December 31, 1999, compared to
7.97% at December 31, 1998. At December 31, 1999, the Company's risk-based
capital ratios were 9.35% for Tier 1 risk-based capital and 10.81% for total
risk-based capital, compared to 10.03% and 12.74%, respectively, as of December
31, 1998.
In addition, at December 31, 1999, each of the Banks had levels of capital
that exceeded the well-capitalized guidelines. For additional information on the
capital levels and capital ratios of the Company and each of the Banks, see Note
17 of Notes to Consolidated Financial Statements.
A-21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Quantitative and Qualitative Disclosures about Market Risk
The Company's financial performance is impacted by, among other factors,
interest rate risk and credit risk. The Company utilizes no derivatives to
mitigate its credit risk, relying instead on loan review and its allowance for
loan losses, see "--Allowance for Loan Losses" herein.
Interest rate risk is the risk of loss in value due to changes in interest
rates. This risk is addressed by the Company's Asset Liability Management
Committee ("ALCO"), which includes senior management representatives. The ALCO
monitors and considers methods of managing interest rate risk by monitoring
changes in net portfolio values and net interest income under various
interest rate scenarios. The ALCO attempts to manage the various components of
the Company's balance sheet to minimize the impact of sudden and sustained
changes in interest rates on net portfolio value and net interest income.
The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in not portfolio value in the event of hypothetical changes in
interest rates and interest liabilities. If potential changes to not portfolio
value and net interest income resulting from hypothetical interest rate swings
are not within the limits established by the Board, the Board may direct
management to adjust its asset and liability mix to bring interest rate risk
within Board-approved limits.
In order to reduce the exposure to interest rate fluctuations, the Company
has developed strategies to manage its liquidity, lengthen the effective
maturities of certain interest-earning assets, and shorten the effective
maturities of certain interest-bearing liabilities. The Company has focused its
investment activities on securities with generally medium-term (8 years to 12
years) maturities or average lives. The Company has utilized short-term
borrowings and deposit marketing programs to adjust the term to repricing of its
liabilities. In addition, the Company has utilized an interest rate swap to
manage the interest rate risk of the TPS II securities. This interest rate
swap is not an "ineffective hedge" and is accounted for under Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities".
Interest rate sensitivity analysis is used to measure the Company's
interest rate risk by computing estimated changes in net portfolio value of its
cash flows from assets, liabilities and off-balance sheet items in the event of
a range of assumed changes in market interest rates. Net portfolio value
represents the market value of portfolio equity and is equal to the market value
of assets minus the market value of liabilities, with adjustments made for off-
balance sheet items. This analysis assesses the risk of loss in market rate
sensitive instruments in the event of sudden and sustained increases and
decreases in market interest rates of 100 basis points. The following table
presents the Company's projected change in net portfolio value for these rate
shock levels as of December 31, 1999. All market rate sensitive instruments
presented in this table are classified as either held to maturity or available
for sale. The Company has no trading securities.
<TABLE>
<CAPTION>
Projected Change
Change in ----------------------------------
Interest Rates
(Dollars in thousands) Net Portfolio Dollars Percentage
Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
100 basis point rise $365,830 $ 7,770 2.2%
Base scenario 358,020 - 0.0%
100 basis point decline 350,469 (7,591) -2.1%
</TABLE>
The preceding table indicates that at December 31, 1999, in the event of a
sudden and sustained decrease in prevailing market interest rates, the Company's
net portfolio value would be expected to decrease. However, the foregoing
analysis does not attribute additional value to the Company's noninterest-
bearing deposit balances, which have a significantly higher market value during
periods of increasing interest rates.
Net portfolio value is calculated based on the net present value of
estimated cash flows utilizing market prepayment assumptions and market rates of
interest provided by independent broker quotations and other public sources.
A-22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Computation of forecasted effects of hypothetical interest rate changes is
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposits decay, and should not be relied upon as
indicative of actual future results. Further, the computations do not
contemplate any actions the ALCO could undertake in response to changes in
interest rates.
Certain shortcomings are inherent in the method of analysis presented in
the computation of net portfolio value. Actual values may differ from those
projections presented should market conditions vary from assumptions used in the
calculation of the net portfolio value. Certain assets, such as adjustable-rate
loans, which represent one of the Company's loan products, have features which
restrict changes in interest rate on a short-term basis and over the life of the
assets. In addition, the proportion of adjustable-rate loans in the Company's
portfolio could decrease in future periods if market interest rates remain at or
decrease below current levels due to refinancing activity. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the net portfolio value.
Finally, the ability of many borrowers to repay their adjustable-rate mortgage
loans may decrease in the event of significant interest rate increases.
Interest Rate Risk Management
Interest rate risk management is a function of the repricing
characteristics of the Company's portfolio of assets and liabilities. Interest
rate risk management focuses on the maturity structure of assets and liabilities
and their repricing characteristics during periods of changes in market interest
rates. Effective interest rate risk management seeks to ensure that both assets
and liabilities respond to changes in interest rates within an acceptable time
frame, thereby minimizing the effect of interest rate movements on net interest
income. Interest rate sensitivity is measured as the difference between the
volumes of assets and liabilities in the Company's current portfolio that are
subject to repricing at various time horizons: one day or immediate, two days to
six months, seven to twelve months, one to three years, four to five years, over
five years and on a cumulative basis. The differences are known as interest
sensitivity gaps.
The following table shows interest sensitivity gaps for different intervals
as of December 31, 1999:
<TABLE>
<CAPTION>
Immediate 2 Days To 7 Months to 1 Year to
(Dollars in thousands) or One Day 6 Months 12 Months 3 Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks $ 794 $ -- $ -- $ --
Short term investments 191,700 -- -- --
Investment securities -- 69,990 22,820 94,409
Other securities -- -- -- --
Loans 919,796 495,126 39,254 108,174
Loan losses/unearned fees -- -- -- --
Other assets -- -- -- --
----------------------------------------------------------------------
Total assets $ 1,112,290 $ 565,116 $ 62,074 $ 202,583
======================================================================
Liabilities and Equity
Deposits $ 1,379,955 $ 397,609 $ 54,834 $ 8,203
Other borrowings -- 47,100 -- --
Subordinated debt -- -- -- --
Trust preferred securities -- -- -- --
Other liabilities -- -- -- --
Shareholders' equity -- -- -- --
----------------------------------------------------------------------
Total liabilities and equity $ 1,379,955 $ 444,709 $ 54,834 $ 8,203
----------------------------------------------------------------------
Gap $ (267,665) $ 120,407 $ 7,240 $ 194,380
Cumulative Gap $ (267,665) $ (147,258) $ (140,018) $ 54,362
Cumulative Gap/total assets -10.20% -5.61% -5.33% 2.07%
</TABLE>
<TABLE>
<CAPTION>
Total
4 Years More than Total Rate Non-Rate
(Dollars in thousands) to 5 Years 5 Years Sensitive Sensitive Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ -- $ -- $ 794 $ 94,622 $ 95,416
Short term investments -- -- 191,700 -- 191,700
Investment securities 53,739 238,113 479,071 -- 479,071
Other securities -- -- -- 20,540 20,540
Loans 76,025 121,626 1,760,001 -- 1,760,001
Loan losses/unearned fees -- -- -- (44,716) (44,716)
Other assets -- -- -- 122,953 122,953
---------------------------------------------------------------------
Total assets $ 129,764 $ 359,739 $ 2,431,566 $ 193,399 $ 2,624,965
---------------------------------------------------------------------
Liabilities and Equity
Deposits $ 734 $ 30 $ 1,841,365 $ 459,523 $ 2,300,888
Other borrowings 22,000 -- 69,100 -- 69,100
Subordinated debt -- -- -- -- --
Trust preferred securities -- 50,000 50,000 -- 50,000
Other liabilities -- -- -- 44,222 44,222
Shareholders' equity -- -- -- 160,755 160,755
---------------------------------------------------------------------
Total liabilities and equity $ 22,734 $ 50,030 $ 1,960,465 $ 664,500 $ 2,624,965
---------------------------------------------------------------------
Gap $ 107,030 $ 309,709 $ 471,101 $ (471,101) --
Cumulative Gap $ 161,392 $ 471,101 $ 471,101 $ -- --
Cumulative Gap/total assets 6.15% 17.95% 17.95% -- --
</TABLE>
A-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The foregoing table indicates that the Company had a one year gap of
$(140.0) million, or (5.33)%of total assets, at December 31, 1999. In theory,
this would indicate that at December 31, 1999, $140.0 million more in
liabilities than assets would reprice if there were a change in interest rates
over the next 365 days. Thus, if interest rates were to increase, the gap
would tend to result in a lower net interest margin. However, changes in the
mix of earning assets or supporting liabilities can either increase or
decrease the net interest margin without affecting interest rate sensitivity.
In addition, the interest rate spread between an asset and its supporting
liability can vary significantly while the timing of repricing of both the
asset and its supporting liability can remain the same, thus impacting net
interest income. This characteristic is referred to as a basis risk and,
generally, relates to the repricing characteristics of short-term funding
sources such as certificates of deposit.
The impact of fluctuations in interest rates on the Company's projected
next twelve month net interest income and net income has been evaluated through
an interest rate shock simulation modeling analysis that includes various
assumptions regarding the repricing relationship of assets and liabilities, as
well as the anticipated changes in loan and deposit volumes over differing rate
environments. As of December 31, 1999, the analysis indicates that the Company's
net interest income would increase a maximum of 14.1% if rates rose 200 basis
points immediately and would decrease a maximum of 13.6% if rates declined 200
basis points immediately. In addition, the results indicate that notwithstanding
the Company's gap position, which would indicate that the net interest margin
increases when rates rise, the Company's net interest margin increases during
rising rate periods due to the basis risk imbedded in the Company's interest-
bearing liabilities.
In addition, while this analysis indicates the probable impact of interest
rate movements on the Company's net interest income, it does not take into
consideration other factors that would impact this analysis. These factors would
include management's and ALCO's actions to mitigate the impact to the Company
and the impact of the Company's credit risk profile during periods of
significant interest rate movements.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis table. These prepayments may have significant
effects on the Company's net interest margin. Because of these factors and
others, an interest sensitivity gap report may not provide a complete assessment
of the Company's exposure to changes in interest rates.
Year 2000 State of Readiness
The Company's mission critical systems successfully responded to the
century date change. Accordingly, the Company's core banking systems, including
the application software for its deposit, loan and trust computer systems, as
well as the electronic funds transfers system with the Federal Reserve, are
fully operational and accurately processing customer information and
transactions. The Company will continue to monitor its systems and those of its
vendors and suppliers over the coming months.
Recent Events
On January 31, 2000, the company Mt. Diablo Bancshares ("MD Bancshares"),
the former holding company of Mt. Diablo National Bank ("MDNB"), merged with and
into Greater Bay. Upon consummation of the merger, the outstanding shares of MD
Bancshares were converted into an aggregate of 1,395,499 shares of Greater Bay's
stock. The stock was issued to MD Bancshares' shareholders in a tax-free
exchange. The transaction will be accounted for as a pooling-of-interests. The
financial information presented herein has not been restated to reflect the
merger with MD Bancshares on a pooling-of-interests basis. As of December 31,
1999, MD Bancshares has $220.5 million in assets, $205.5 million in deposits and
$12.8 million in shareholders' equity. MDNB has offices located in Danville,
Pleasanton and Lafayette, California.
A-24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
On December 14, 1999, Greater Bay and Coast Bancorp the holding company of Coast
Commercial Bank ("CCB"), a California state chartered bank signed a definitive
agreement for a merger between the two companies. The agreement provides for
Coast Bancorp shareholders to receive approximately 3,105,000 shares of Greater
Bay stock, subject to certain adjustments based on movements in Greater Bay's
stock price, in a tax-free exchange to be accounted for as a pooling-of-
interests. The transaction is expected to be completed in the second quarter of
2000, subject to regulatory and shareholder approvals. As of December 31, 1999,
Coast Bancorp had $370.0 million in assets, $300.6 million in deposits and $33.0
million in shareholders' equity. CCB's offices are located in Aptos, Capitola,
Santa Cruz, Scotts Valley and Watsonville, California.
On January 26, 2000, the Company, the Bank of Santa Clara ("BSC") and GBB
Merger Corp. signed a definitive agreement for a merger between BSC and GBB
Merger Corp., as a result of which BSC will become a wholly owned subsidiairy of
Greater Bay. The agreement provides for BSC shareholders to receive
approximately 2,017,000 shares of Greater Bay stock subject to certain
adjustments based on movements in Greater Bay's stock price in a tax-free
exchange to be accounted for as a pooling-of-interests. The transaction is
expected to be completed in the second quarter of 2000 subject to regulatory and
shareholders approvals. As of December 31, 1999, BSC had $326.9 million in
assets, $293.7 million in deposits and $31.4 million in shareholders' equity.
BSC has offices in Milpitas, San Jose, Santa Clara and Sunnyvale, California.
Assuming the acquisitions of MD Bancshares, Coast Bancorp and BSC had been
completed on December 31, 1999, Greater Bay would have had proforma assets of
$3.5 billion, deposits of $3.1 billion and $238.0 million of shareholders'
equity on a pooled basis.
Recent Accounting Developments
In April 1999, the Financial Accounting Standards Board ("FASB") reached
tentative conclusions on the future of the pooling-of-interests method of
accounting for business combinations. These tentative decisions include the
decision that the pooling-of-interests method of accounting will no longer be an
acceptable method to account for business combinations between independent
parties and that there should be a single method of accounting for all business
combinations, and that method is the purchase method. The FASB agreed that the
purchase method should be applied prospectively to business combination
transactions that are initiated after the final standard is issued. The FASB has
issued an exposure draft during the third quarter of 1999 and expects a final
standard will be issued and become effective in the fourth quarter of 2000. A
portion of the Company's business strategy is to pursue acquisition
opportunities so as to expand its market presence and maintain growth levels. A
change in the accounting for business combinations could have a negative impact
on the Company's ability to realize those business strategies.
A-25
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------
(Dollars in thousands) 1999 1998*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 95,416 $ 78,660
Federal funds sold 191,700 62,800
Other short term securities 29,507 77,576
-----------------------------------
Cash and cash equivalents 316,623 219,036
Investment securities:
Available for sale, at fair value 307,840 289,291
Held to maturity, at amortized cost (fair value 1999: $136,481
1998: $103,028) 141,725 102,108
Other securities 20,540 6,013
-----------------------------------
Investment securities 470,105 397,412
Total loans:
Commercial 758,148 501,106
Term real estate - commercial 431,226 316,328
-----------------------------------
Total commercial 1,189,374 817,434
Real estate construction and land 372,481 230,568
Real estate other 92,688 74,265
Consumer and other 105,457 91,239
Deferred loan fees and discounts (6,681) (4,395)
-----------------------------------
Total loans, net of deferred fees 1,753,319 1,209,111
Allowance for loan losses (38,035) (24,359)
-----------------------------------
Total loans, net 1,715,284 1,184,752
Property, premises and equipment 18,589 13,329
Interest receivable and other assets 104,364 67,862
-----------------------------------
Total assets $ 2,624,965 $ 1,882,391
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits $ 2,300,888 $ 1,602,342
Other borrowings 69,100 83,429
Subordinated debt - 3,000
Other liabilities 44,222 25,184
-----------------------------------
Total liabilities 2,414,210 1,713,955
-----------------------------------
Company obligated mandatorily redeemable cumulative trust preferred
securities of subsidiary trusts holding solely junior subordinated debentures 50,000 50,000
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value: 4,000,000 shares authorized;
none issued - -
Common stock, no par value: 24,000,000 shares authorized;
12,806,115 and 11,743,127 shares issued and outstanding as of
December 31, 1999 and 1998, respectively 92,096 66,711
Accumulated other comprehensive (loss) (4,748) (59)
Retained earnings 73,407 51,784
-----------------------------------
Total shareholders' equity 160,755 118,436
-----------------------------------
Total liabilities and shareholders' equity $ 2,624,965 $ 1,882,391
===================================
</TABLE>
*Restated on a historical basis to reflect the mergers described in notes 1 and
2 on a pooling of interests basis.
See notes to consolidated financial statements.
A-26
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
(Dollars in thousands, except per share amounts) 1999 1998* 1997*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans $ 136,828 $ 102,092 $ 85,415
Interest on investment securities:
Taxable 22,586 19,303 10,301
Tax - exempt 3,681 2,440 1,356
---------------------------------------
Total interest on investment securities 26,267 21,743 11,657
Other interest income 12,255 11,163 9,948
---------------------------------------
Total interest income 175,350 134,998 107,020
---------------------------------------
INTEREST EXPENSE
Interest on deposits 63,110 46,410 36,426
Interest on long term borrowings 7,714 6,752 2,165
Interest on other borrowings 794 1,497 1,378
---------------------------------------
Total interest expense 71,618 54,659 39,969
---------------------------------------
Net interest income 103,732 80,339 67,051
Provision for loan losses 12,249 6,369 7,078
---------------------------------------
Net interest income after provision for loan losses 91,483 73,970 59,973
---------------------------------------
OTHER INCOME
Trust fees 2,990 2,473 2,049
Loan and international banking fees 2,833 1,303 1,404
Service charges and other fees 2,711 2,056 2,100
ATM network revenue 2,110 1,966 2,057
Gain on sale of SBA loans 1,010 1,125 940
Gain (loss) on investments, net (19) 374 (8)
Warrant income, net 14,508 945 1,162
Other income 5,684 419 325
---------------------------------------
Total 31,827 10,661 10,029
---------------------------------------
OPERATING EXPENSES
Compensation and benefits 35,316 28,822 25,833
Occupancy and equipment 11,256 7,859 6,892
Contribution to the GBB Foundation and related expenses, net 12,160 1,341 -
Merger and other related nonrecurring costs 10,331 2,661 3,333
Recovery of legal settlement - - (1,700)
Other expenses 14,587 14,071 12,839
---------------------------------------
Total operating expenses 83,650 54,754 47,197
---------------------------------------
Net income before provision for income taxes and
extraordinary items 39,660 29,877 22,805
Provision for income taxes 11,861 9,719 8,320
---------------------------------------
Net income before extraordinary items 27,799 20,158 14,485
Extraordinary items (88) - -
---------------------------------------
Net income $ 27,711 $ 20,158 $ 14,485
=======================================
Net income per share - basic** $ 2.28 $ 1.69 $ 1.29
=======================================
Net income per share - diluted** $ 2.17 $ 1.59 $ 1.21
=======================================
</TABLE>
*Restated on a historical basis to reflect the mergers described in notes 1 and
2 on a pooling of interests basis.
**Restated to reflect 2-for-1 stock split declared for shareholders of record at
April 30, 1998.
See notes to consolidated financial statements.
A-27
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
(Dollars in thousands) 1999 1998* 1997*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 27,711 $ 20,158 $ 14,485
---------------------------------------
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period (net of
taxes of $(11,083), $133, and $248 for the years ended
December 31, 1999, 1998 and 1997, respectively) (15,274) 184 329
Less: reclassification adjustment for gains (losses) included in
net income (net of taxes of $6,085, $154 and $(3) for the
years ended December 31, 1999, 1998 and 1997,
respectively) 8,404 220 (5)
----------------------------------------
Net change (6,870) 404 324
Cash flow hedge:
Cumulative transition effect of adopting SFAS No. 133
(net of taxes of $(744)) as of October 1, 1998 - (1,063) -
Change in market value of hedge during the period
(net of taxes of $1,092 and $294 for the years ended December 31,
1999 and 1998, respectively) 2,325 418 -
Less: reclassification adjustment for swap settlements
in net income (net of taxes of $(60) and $(23) for the years ended
December 31, 1999 and 1998, respectively) (144) (32) -
----------------------------------------
Net change 2,181 (677) -
Other comprehensive income (loss) (4,689) (273) 324
----------------------------------------
Comprehensive income $ 23,022 $ 19,885 $ 14,809
========================================
</TABLE>
* Restated on a historical basis to reflect the mergers described in notes 1 and
2 on a pooling of interest basis.
See notes to consolidated financial statements.
A-28
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated Other Total
For the years ended December 31, 1999, 1998 and 1997 ---------------------- Comprehensive Retained Shareholders'
(Dollars in thousands, except per share amounts) Shares** Amount Income (Loss) Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Greater Bay Bancorp, prior to pooling 6,477,774 $ 34,884 $ 71 $ 9,727 $ 44,682
Shares issued to Peninsula Bank of Commerce
shareholders 1,295,216 7,141 - - 7,141
Peninsula Bank of Commerce retained earnings prior to
pooling - - (53) 6,186 6,133
Shares issued to Pacific Rim Bancorporation
shareholders 950,748 8,000 - - 8,000
Pacific Rim Bancorporation retained earnings prior to
pooling - - (108) 879 771
Shares issued to Pacific Business Funding Corporation
shareholders 298,000 51 - - 51
Pacific Business Funding Corporation retained earnings prior to
pooling - - - 59 59
Shares issued to Bay Area Bancorp shareholders 1,164,427 4,143 - - 4,143
Bay Area Bancorp retained earnings prior to pooling - - (5) 5,143 5,138
Shares issued to Bay Commercial Services shareholders 735,723 3,662 - - 3,662
Bay Commercial Services retained earnings prior to pooling - - (15) 5,771 5,756
---------------------------------------------------------------
Balance, December 31, 1996, restated to reflect pooling 10,921,888 57,881 (110) 27,765 85,536
Net income - - - 14,485 14,485
Other comprehensive income, net of taxes - - 324 - 324
Stock options exercised, including related tax benefit 408,626 2,646 - - 2,646
Stock issued in Employee Stock Purchase Plan 30,320 347 - - 347
401(k) employee stock purchase 36,152 531 - - 531
Stock repurchase 6 (89) - - (89)
Pacific Business Funding Corporation distribution - - - (208) (208)
Cash dividend $0.43 per share*** - - - (4,871) (4,871)
---------------------------------------------------------------
Balance, December 31, 1997* 11,396,992 61,316 214 37,171 98,701
Net income - - - 20,158 20,158
Other comprehensive loss, net of taxes - - (273) - (273)
Stock options exercised, including related tax benefit 283,396 3,822 - - 3,822
Stock issued in Employee Stock Purchase Plan 29,670 656 - - 656
401(k) employee stock purchase 36,483 1,060 - - 1,060
Stock repurchase (3,414) (143) - - (143)
Pacific Business Funding Corporation distribution - - - (1,163) (1,163)
Cash dividend $0.37 per share*** - - - (4,382) (4,382)
---------------------------------------------------------------
Balance, December 31, 1998* 11,743,127 66,711 (59) 51,784 118,436
Net income - - - 27,711 27,711
Other comprehensive loss, net of taxes - - (4,689) - (4,689)
Stock options exercised, including related tax benefit 443,283 4,023 - - 4,023
Stock issued in Employee Stock Purchase Plan 41,651 1,031 - - 1,031
401(k) employee stock purchase 38,005 1,205 - - 1,205
Stock issued in Dividend Reinvestment Plan 5,049 171 - - 171
Pacific Business Funding Corporation distribution - - - (40) (40)
Stock issued through private placement 535,000 18,961 - - 18,961
BAB Merger - (6) - - (6)
Cash dividend $0.50 per share*** - - - (6,048) (6,048)
---------------------------------------------------------------
Balance, December 31, 1999 $12,806,115 $ 92,096 $ (4,748) $ 73,407 $160,755
===============================================================
</TABLE>
* Restated on a historical basis to reflect the mergers described in notes 1
and 2 on a pooling of interests basis.
** Restated to reflect 2-for-1 stock split declared for shareholders of record
at April 30, 1998.
*** Excluding dividends paid by Greater Bay's subsidiaries prior to the
completion of their mergers with Greater Bay. Greater Bay paid dividends of
$0.48, $0.38 and $0.30 per share on December 31, 1999, 1998 and 1997,
respectively. In 1999, Bay Area Bancshares declared dividends of $0.11 per
share. In 1998, Bay Area Bancshares declared dividends of $0.41 per share,
Bay Commercial Services declared dividends of $0.40 per share and Pacific
Business Funding Corporation made a distribution of $1.2 million to its
shareholders. In 1997, Bay Area Bancshares declared dividends of $0.37 per
share, Bay Commercial Services declared dividends of $0.30 per share,
Peninsula Bank of Commerce declared an annual dividend of $3.20 per share,
Pacific Rim Bancorporation declared and paid a dividend of $100,000 to its
sole shareholder and Pacific Business Funding Corporation made a
distribution of $208,000 to its shareholders.
See notes to consolidated financial statements.
A-29
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
(Dollars in thousands) 1999 1998* 1997*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows - operating activities
Net income $ 27,711 $ 20,158 $ 14,485
Reconcilement of net income to net cash from operations:
Provision for loan losses 14,994 6,552 8,429
Depreciation and amortization 5,275 2,323 2,200
Deferred income taxes (6,328) (3,308) (4,258)
(Gain) loss on sale of investments, net 19 (374) 8
Changes in:
Accrued interest receivable and other assets (22,736) (10,422) (5,430)
Accrued interest payable and other liabilities 21,634 6,470 5,763
Deferred loan fees and discounts, net 2,286 503 276
----------------- ---------------- ----------------
Operating cash flows, net 42,855 21,902 21,473
----------------- ---------------- ----------------
Cash flows - investing activities
Maturities and partial paydowns on investment securities:
Held to maturity 78,770 66,495 31,475
Available for sale 45,707 546,215 85,442
Purchase of investment securities:
Held to maturity (95,041) (101,436) (16,836)
Available for sale (123,613) (841,025) (210,297)
Other securities (14,527) (3,760) (682)
Proceeds from sale of available for sale securities 25,351 195,863 15,595
Loans, net (546,494) (297,846) (197,143)
Purchase of property, premises and equipment (6,735) (2,190) (2,943)
Investment in other real estate owned - 1,303 (500)
Purchase of insurance policies (9,206) (23,480) -
----------------- ---------------- ----------------
Investing cash flows, net (645,788) (459,861) (295,889)
----------------- ---------------- ----------------
Cash flows - financing activities
Net change in deposits 698,546 322,633 282,317
Net change in other borrowings - short term (15,569) (21,451) 12,831
Proceeds from other borrowings - long term 2,015 70,000 3,025
Principal repayment - long term borrowings (3,775) (2,265) (865)
Proceeds from company obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely junior
subordinated debentures - 30,000 20,000
Proceeds from sale of common stock 25,351 4,232 3,551
Cash dividends (6,048) (4,382) (4,871)
----------------- ---------------- ----------------
Financing cash flows, net 700,520 398,767 315,988
----------------- ---------------- ----------------
Net change in cash and cash equivalents 97,587 (39,192) 41,572
Cash and cash equivalents at beginning of period 219,036 258,228 216,656
----------------- ---------------- ----------------
Cash and cash equivalents at end of period $ 316,623 $ 219,036 $ 258,228
================= ================ ================
Cash flows - supplemental disclosures
Cash paid during the period for:
Interest $ 77,483 $ 53,385 $ 39,612
================= ================ ================
Income taxes $ 9,414 $ 12,485 $ 13,017
================= ================ ================
Non-cash transactions:
Additions to other real estate owned $ - $ 450 $ 1,723
================= ================ ================
Transfer of appreciated securities to Greater Bay
Bancorp Foundation $ 560 $ 1,341 $ -
================= ================ ================
</TABLE>
*Restated on a historical basis to reflect the mergers described in notes 1 and
2 on a pooling of interests basis.
See notes to consolidated financial statements.
A-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Greater Bay Bancorp ("Greater Bay", on a parent-only basis, and the
"Company" on a consolidated basis) is a bank holding company operating Bay Area
Bank ("BAB"), Bay Bank of Commerce ("BBC"), Cupertino National Bank ("CNB"),
Golden Gate Bank ("Golden Gate"), Mid-Peninsula Bank ("MPB") and Peninsula Bank
of Commerce ("PBC"). The Company also owns GBB Capital I and GBB Capital II,
both of which are Delaware statutory business trusts, which were formed for the
exclusive purpose of issuing and selling Cumulative Trust Preferred Securities
("TPS"). Greater Bay also includes the operating divisions: Greater Bay Bank
Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Santa
Clara Valley Commercial Banking Group, Greater Bay Bank SBA Lending Group,
Greater Bay Corporate Finance Group, Greater Bay International Banking Division,
Greater Bay Trust Company, Pacific Business Funding and the Venture Banking
Group. The Company provides a wide range of commercial banking services to small
and medium-sized businesses, real estate developers, property managers, business
executives, professionals and other individuals. The Company operates throughout
Silicon Valley, the San Francisco Peninsula and the East Bay Region, with 18
offices located in Cupertino, Fremont, Hayward, Millbrae, Palo Alto, Redwood
City, San Francisco, San Jose, San Leandro, San Mateo, San Ramon, Santa Clara
and Walnut Creek.
All of the Company's mergers were accounted for as a pooling-of-interests
and, accordingly, all of the financial information for the Company for the
periods prior to the mergers had been restated as if the mergers has occurred
at the beginning of the earliest reporting period presented.
A-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Greater Bay
and its wholly owned subsidiaries, BAB, BBC, CNB, Golden Gate, MPB, PBC, GBB
Capital I and GBB Capital II and its operating divisions. All significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior years' consolidated financial
statements to conform to the 1999 presentation. The accounting and reporting
policies of the Company conform to generally accepted accounting principles and
the prevailing practices within the banking industry.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of certain revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, Federal Funds sold and agency
securities with original maturities of less than ninety days. Generally, Federal
Funds are sold for one-day periods. As discussed in Note 7, PBC holds $111.1
million in one demand deposit account whose funds are comprised of proceeds from
a lawsuit settlement. Due to the uncertainty of the time this special deposit
(the "Special Deposit") will remain with PBC, management has invested a
significant portion of the proceeds in agency securities with maturities of less
than 90 days. These securities have been classified as cash and equivalents.
BAB, BBC, CNB, Golden Gate, MPB and PBC are required by the Federal Reserve
System to maintain noninterest-earning cash reserves against certain of their
deposit accounts. At December 31, 1999, the required combined reserves totaled
approximately $845,000.
Investment Securities
The Company classifies its investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Investment securities
classified as held to maturity are reported at amortized cost; available for
sale securities are reported at fair value with net unrealized gains and losses
reported (net of taxes) as a component of shareholders' equity. The Company
does not have any trading securities.
A decline in the fair value of any available for sale or held to maturity
security below cost that is deemed other than temporary, results in a charge to
earnings and the corresponding establishment of a new cost basis for the
security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income is recognized when earned. Realized gains and
losses for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
Required investments in Federal Reserve Bank and Federal Home Loan Bank
stocks for the Bank's are recorded at cost.
A-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Loans
Loans held for investment are carried at amortized cost. The Company's loan
portfolio consists primarily of commercial and real estate loans generally
collateralized by first and second deeds of trust on real estate as well as
business assets and personal property.
Interest income is accrued on the outstanding loan balances using the
simple interest method. Loans are generally placed on nonaccrual status when the
borrowers are past due 90 days and when full payment of principal or interest is
not expected. At the time a loan is placed on nonaccrual status, any interest
income previously accrued but not collected is generally reversed and
amortization of deferred loan fees is discontinued. Interest accruals are
resumed on such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.
The Company charges loan origination and commitment fees. Net loan
origination fees and costs are deferred and amortized to interest income over
the life of the loan, using the effective interest method. Loan commitment fees
are amortized to interest income over the commitment period.
When a loan is sold, unamortized fees and capitalized direct costs are
recognized in the consolidated statements of operations. Other loan fees and
charges representing service costs for the repayment of loans, for delinquent
payments or for miscellaneous loan services are recognized when earned.
Sale and Servicing of Small Business Administration ("SBA") Loans
The Company originates loans to customers under SBA programs that generally
provide for SBA guarantees of 70% to 90% of each loan. The Company generally
sells the guaranteed portion of the majority of the loans to an investor and
retains the unguaranteed portion and servicing rights in its own portfolio.
Funding for the SBA programs depend on annual appropriations by the U.S.
Congress.
Gains on these sales are earned through the sale of the guaranteed portion
of the loan for an amount in excess of the adjusted carrying value of the
portion of the loan sold. The Company allocates the carrying value of such loans
between the portion sold, the portion retained and a value assigned to the right
to service the loan. The difference between the adjusted carrying value of the
portion retained and the face amount of the portion retained is amortized to
interest income over the life of the related loan using a method which
approximates the interest method.
Allowance for Loan Losses
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by SFAS No. 118 ("SFAS No. 114 and No. 118"), on January
1, 1995. Under these standards, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal and interest when due according to
the contractual terms of the loan agreement. Under these standards, any
allowance on impaired loans is generally based on one of three methods. It
requires that impaired loans be measured at either, 1) the present value of
expected cash flows at the loan's effective interest rate, 2) the loan's
observable market price, or 3) the fair value of the collateral of the loan. In
general, these statements are not applicable to large groups of smaller-balance
loans that are collectively evaluated for impairment such as credit cards,
residential mortgage, consumer installment loans and certain small business
loans. Income recognition on impaired loans conforms to the method the Company
uses for income recognition on nonaccrual loans.
A-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The allowance for loan losses is maintained at a level deemed appropriate
by management to adequately provide for known losses in the loan portfolio. The
allowance is based upon a number of factors, including prevailing and
anticipated economic trends, industry experience, estimated collateral values,
management's assessment of credit risk inherent in the portfolio, delinquency
trends, historical loss experience, specific problem loans and other relevant
factors.
Additions to the allowance, in the form of provisions, are reflected in
current operating results, while charge-offs to the allowance are made when a
loss is determined to have occurred. Because the allowance for loan losses is
based on estimates, ultimate losses may vary from the current estimates.
Other Real Estate Owned
Other real estate owned ("OREO") consists of properties acquired through
foreclosure and is stated at the lower of carrying value or fair value less
estimated costs to sell. Development and improvement costs relating to the OREO
are capitalized. Estimated losses that result from the ongoing periodic
valuation of these properties are charged to current earnings with a provision
for losses on foreclosed property in the period in which they are identified.
The resulting allowance for OREO losses is decreased when the property is sold.
Operating expenses of such properties, net of related income, are included in
other expenses. Gains and losses on the disposition of OREO are included in
other income.
Property, Premises and Equipment
Property, premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed on a straight-line basis
over the estimated useful lives of the assets, which is determined by asset
classification, as follows:
Buildings 40 years
Building improvements 10 years
Furniture and fixtures 7 years
Automobiles 5 years
Computer equipment 2 - 5 years
Other equipment 2 - 7 years
Amortization of leasehold improvements is computed on a straight-line basis
over the shorter of the lease term or the estimated useful lives of the asset,
which is generally 10 years.
Income Taxes
Deferred incomes taxes reflect the estimated future tax effects of
temporary differences between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
A-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Derivatives and Hedging Activities
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), effective October 1, 1998. In
accordance with the transition provisions of SFAS No. 133, the Company recorded
a net-of-tax cumulative-effect-type adjustment of $1.1 million in accumulated
other comprehensive income to recognize at fair value all derivatives that are
designated as cash-flow hedging instruments. There were no net gains or losses
on derivatives that had been previously deferred or gains and losses on
derivatives that were previously deferred as adjustments to the carrying amount
of hedged items.
All derivatives are recognized on the balance sheet at their fair value.
On the date the derivative contract is entered into, the Company designates the
derivative as a hedge of a forecasted transaction or a hedge of the variability
of cash flows to be received or paid related to a recognized asset or liability
("cash flow" hedge). Changes in the fair value of a derivative that is highly
effective as, and that is designated and qualifies as, a cash-flow hedge are
recorded in other comprehensive income, until earnings are affected by the
variability of cash flows (e.g., when periodic settlements on a variable-rate
asset or liability are recorded in earnings).
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as cash-flow hedges to specific
liabilities on the balance sheet. The Company also formally assesses, both at
the hedge's inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in cash
flows of hedged items.
When it is determined that a derivative is not highly effective as a hedge
or that it has ceased to be a highly effective hedge, the Company discontinues
hedge accounting prospectively when (1) it is determined that the derivative is
no longer effective in offsetting changes in the cash flows of a hedged item;
(2) the derivative expires or is sold, terminated, or exercised; or (3)
management determines that designation of the derivative as a hedge instrument
is no longer appropriate. In these situations where hedge accounting is
discontinued, the derivative will be carried at its fair value on the balance
sheet, with changes in its fair value recognized in current-period earnings.
All gains or losses that were accumulated in other comprehensive income will be
recognized immediately in earnings upon the discontinuance of hedge accounting.
Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement requires companies to classify items of
other comprehensive income by their nature in the financial statements and
display the accumulated other comprehensive income separately from retained
earnings in the equity section of the balance sheet. The changes to the
balances of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
Accumulated
Other
Unrealized Gains Cash Flow Comprehensive
(Dollars in thousands) on Securities Hedges Income (Loss)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - December 31, 1997 $ 214 $ - $ 214
Other comprehensive income (loss) in 1998 404 (677) (273)
-----------------------------------------------------
Balance - December 31, 1998 618 (677) (59)
Other comprehensive income (loss) in 1999 (6,870) 2,181 (4,689)
-----------------------------------------------------
Balance - December 31, 1999 $ (6,252) $ 1,504 $ (4,748)
=====================================================
</TABLE>
A-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Per Share Data
Net income per share is stated in accordance with SFAS No. 128 "Earnings
per Share". Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
net income per share is computed by dividing net income by the weighted average
number of common shares plus common equivalent shares outstanding including
dilutive stock options. All years presented include the effect of the 2-for-1
stock split effective as of April 30, 1998.
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted net income per share computations for the
years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
For the year ended December 31, 1999
-----------------------------------------------------
Income Shares Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 27,711
Basic net income per share:
Income available to common shareholders 27,711 12,146,000 $ 2.28
Effect of dilutive securities:
Stock options - 648,000 -
-------------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 27,711 12,794,000 $ 2.17
================================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1998
----------------------------------------------------
Income Shares Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 20,158
Basic net income per share:
Income available to common shareholders 20,158 11,927,000 $ 1.69
Effect of dilutive securities:
Stock options - 756,000 -
-------------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 20,158 12,683,000 $ 1.59
=================================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997
----------------------------------------------------
Income Shares Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 14,485
Basic net income per share:
Income available to common shareholders 14,485 11,243,000 $ 1.29
Effect of dilutive securities:
Stock options - 696,000 -
--------------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 14,485 11,939,000 $ 1.21
==================================================
</TABLE>
A-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Segment Information
In 1998, the Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131".) SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise",
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position but did affect the disclosure of segment information.
NOTE 2-MERGERS
Completed Mergers
On January 31, 2000, Mt. Diablo Bancshares ("MD Bancshares"), the former
holding company of Mt. Diablo National Bank ("MDNB"), merged with and into
Greater Bay Company. Upon consummation of the merger, the outstanding shares of
MD Bancshares were converted into an aggregate of 1,395,499 shares of Greater
Bay's stock. The stock was issued to MD Bancshares' shareholders in a tax-free
exchange. The transaction will be accounted for as a pooling-of-interests. The
financial information presented herein has not been restated to reflect the
merger with MD Bancshares on a pooling-of-interests basis.
On October 15, 1999, Bay Commercial Services ("BCS"), the parent of Bay
Bank of Commerce, merged with and into Greater Bay. Upon consummation of the
merger, the outstanding shares of BCS were converted into an aggregate of
907,240 shares of Greater Bay's stock. The stock was issued to former BCS
shareholders, in a tax-free exchange accounted for as a pooling-of-interests.
On May 21, 1999, Bay Area Bancshares ("BA Bancshares"), the former holding
company of Bay Area Bank, merged with and into Greater Bay. Upon consummation of
the merger, the outstanding shares of BAB were converted into an aggregate of
1,399,321 shares of Greater Bay's stock. The stock was issued to former BA
Bancshares shareholders, in a tax-free exchange accounted for as a pooling-of-
interests.
On August 31, 1998, Pacific Business Funding Corporation ("PBFC"), an
asset-based specialty finance company merged with and into the Company. Upon
consummation of the merger, the outstanding shares of PBFC were converted into
an aggregate of 298,000 shares of the Company's stock. The stock was issued to
former PBFC shareholders, in a tax-free exchange accounted for as a pooling-of-
interests.
On May 8, 1998, Pacific Rim Bancorporation ("PRB"), the former holding
company of Golden Gate, merged with and into a subsidary of Greater Bay. Upon
consummation of the merger, the outstanding shares of PRB were converted into an
aggregate of 950,748 shares of Greater Bay's stock. The stock was issued to
former PRB's sole shareholder in a tax-free exchange accounted for as a pooling-
of-interests.
On December 23, 1997, PBC merged with a subsidary of Greater Bay. Upon
consummation of the merger, the outstanding shares of PBC were converted into an
aggregate of 1,328,000 shares (as adjusted to reflect the 2-for-1 stock split)
of Greater Bay's stock. The stock was issued to former PBC shareholders, in a
tax-free exchange accounted for as a pooling-of-interests.
A-37
<PAGE>
Pending Mergers (unaudited)
On December 14, 1999, Greater Bay and Coast Bancorp, the holding company of
Coast Commercial Bank ("CCB"), a California state chartered bank, signed a
definitive agreement for a merger between the two companies. The agreement
provides for Coast Bancorp shareholders to receive approximately 3,105,000
shares of Greater Bay stock subject to certain adjustments based on movements in
the Company's stock price, in a tax-free exchange to be accounted for as a
pooling-of-interests. The transaction is expected to be completed in the second
quarter of 2000 subject to regulatory and shareholder approvals. As of and for
the year ended December 31, 1999, Coast Bancorp had $17.2 million in net
interest income, $4.4 million in net income, $370.0 million in assets, $300.6
million in deposits and $33.0 million in shareholders' equity.
On January 26, 2000, Greater Bay, Bank of Santa Clara ("BSC") and GBB
Merger Corp. signed a definitive agreement for a merger between BSC and GBB
Merger Corp., as a result of which BSC will become a wholly owned subsidiary of
Greater Bay. The agreement provides for BSC shareholders to receive
approximately 2,017,000 shares of Greater Bay stock subject to certain
adjustments based on movements in Greater Bay's stock price in a tax-free
exchange to be accounted for as a pooling-of-interests. The transaction is
expected to be completed in the second quarter of 2000 subject to regulatory and
shareholder approvals. As of and for the year ended December 31, 1999, BSC had
$20.0 million in net interest income, $6.9 million in net income, $326.9 million
in assets, $293.7 million in deposits and $31.4 million in shareholders' equity.
A-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The following table sets forth the separate results of operations for
Greater Bay, BA Bancshares, BCS, PBFC, PRB and MD Bancshares for the periods
indicated:
<TABLE>
<CAPTION>
Year ended
December 31, Net Interest Income Net Income
- ------------- ------------------- ----------
(Dollars in thousands)
1999
-----
<S> <C> <C>
Greater Bay $ 103,732 $ 27,711
MD Bancshares 10,009 2,827
--------- --------
Combined $ 113,741 $ 30,538
========= ========
1998
----
Greater Bay $ 65,448 $ 16,578
BA Bancshares 8,170 2,365
Bay Commercial Services 6,107 1,215
--------- --------
Subtotal 79,725 20,158
MD Bancshares 7,363 1,396
--------- --------
Combined $ 87,088 $ 21,554
========= ========
1997
----
Greater Bay $ 47,776 $ 10,013
PRB 4,750 996
PBFC 1,942 610
BA Bancshares 6,781 1,805
Bay Commercial Services 5,389 1,062
--------- --------
Subtotal 66,638 14,486
MD Bancshares 4,295 714
--------- --------
Combined $ 70,933 $ 15,200
========= ========
</TABLE>
Assuming the acquisitions of MD Bancshares, Coast Bancorp and BSC had been
completed at December 31, 1999, Greater Bay would have had, on a pooled basis,
1999 proforma net interest income of $150.9 million and net income on a pooled
basis of $41.8 million.
In all mergers, certain reclassifications were made to conform to the
Company's financial presentation. The results of operations previously reported
by the separate enterprises for the periods before the merger was consummated
and that are included in the current combined amounts presented in the
accompanying consolidated financial statements are summarized below.
A-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The following table sets forth the composition of the operations of the
Company and BCS, BA Bancshares, PBFC, PBC, PRB and MD Bancshares for the periods
indicated.
<TABLE>
<CAPTION>
MD Bancshares BCS BA Bancshares PBFC
Twelve months ended Nine months ended Three months ended Six months ended
(Dollars in thousands) December 31, 1999 September 30, 1999 March 31, 1999 June 30, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Interest Income:
Greater Bay Bancorp $ 103,732 $ 68,498 $ 18,360 $ 30,077
Acquired Entity 10,009 2,007 2,180 1,154
---------- --------- -------- --------
Combined $ 113,741 $ 70,505 $ 20,540 $ 31,231
---------- --------- -------- --------
Net Income:
Greater Bay Bancorp $ 27,711 $ 17,033 $ 5,058 $ 6,628
Acquired Entity 2,827 486 644 344
---------- --------- -------- --------
Combined $ 30,538 $ 17,519 $ 5,702 $ 6,972
---------- --------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
PRB PBC
Three months ended Nine months ended
March 31, 1998 September 30, 1997
--------------------------------------------------------
<S> <C> <C>
Net Interest Income:
Greater Bay Bancorp $ 13,366 $ 27,922
Acquired Entity 1,285 6,851
-------- --------
Combined $ 14,651 $ 34,773
-------- --------
Net Income:
Greater Bay Bancorp $ 3,646 $ 6,097
Acquired Entity 60 2,573
Combined -------- -------
$ 3,706 $ 8,670
-------- -------
</TABLE>
There were no significant transactions between the Company and any of the
acquired entities prior to the mergers. All intercompany transactions have been
eliminated.
A-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
NOTE 3-INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities is
summarized below:
<TABLE>
<CAPTION>
Gross Gross
As of December 31, 1999 Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations $ 6,151 $ - $ (65) $ 6,086
U.S. agency notes 16,784 - (641) 16,143
Mortgage-backed securities 168,733 - (4,946) 163,787
Tax-exempt securities 33,428 53 (2,186) 31,295
Corporate securities 101,469 - (10,940) 90,529
------------------------------------------------------
Total securities available for sale 326,565 53 (18,778) 307,840
------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations 500 - - 500
U.S. agency notes 29,482 - (667) 28,815
Mortgage-backed securities 59,524 28 (2,018) 57,534
Tax-exempt securities 52,219 123 (2,710) 49,632
------------------------------------------------------
Total securities held to maturity 141,725 151 (5,395) 136,481
------------------------------------------------------
Other securities 12,397 8,143 - 20,540
------------------------------------------------------
Total investment securities $ 480,687 $ 8,347 $ (24,173) $ 464,861
======================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
As of December 31, 1998 Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations $ 4,408 $ 26 $ - $ 4,434
U.S. agency notes 31,125 23 (8) 31,140
Mortgage-backed securities 164,578 1,081 (81) 165,578
Tax-exempt securities 32,952 563 - 33,515
Corporate securities 55,168 60 (604) 54,624
-------------------------------------------------------
Total securities available for sale 288,231 1,753 (693) 289,291
-------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations 1,764 2 (2) 1,764
U.S. agency notes 28,495 22 (58) 28,459
Mortgage-backed securities 37,967 174 (207) 37,934
Tax-exempt securities 33,882 1,004 (15) 34,871
-------------------------------------------------------
Total securities held to maturity 102,108 1,202 (282) 103,028
-------------------------------------------------------
Other securities 6,013 - - 6,013
-------------------------------------------------------
Total investment securities $ 396,352 $ 2,955 $ (975) $ 398,332
=======================================================
</TABLE>
A-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The following table shows amortized cost and estimated fair value of the
Company's investment securities by year of maturity as of December 31, 1999.
<TABLE>
<CAPTION>
2001 2005
Through Through 2010 and
(Dollars in thousands) (1) 2000 2004 2009 Thereafter Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations $ 100 $ 6,051 $ - $ - $ 6,151
U.S. agency notes (2) - 7,002 9,783 - 16,785
Mortgage-backed securities (3) 1,023 6,882 5,734 155,094 168,734
Tax-exempt securities 211 3,197 2,646 27,374 33,427
Corporate securities 996 - - 100,474 101,470
---------------------------------------------------------------------
Total securities available for sale 2,330 23,132 18,163 282,942 326,567
---------------------------------------------------------------------
Fair value $ 2,303 $ 22,827 $ 17,512 $ 265,197 $ 307,839
---------------------------------------------------------------------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations 500 - - - 500
U.S. agency notes (2) 2,000 23,993 3,490 - 29,483
Mortgage-backed securities (3) 75 2,082 9,082 48,285 59,524
Tax-exempt securities 996 3,130 11,670 36,422 52,218
---------------------------------------------------------------------
Total securities held to maturity 3,571 29,205 24,242 84,706 141,725
---------------------------------------------------------------------
Fair value 3,564 28,616 23,661 80,640 136,481
---------------------------------------------------------------------
COMBINED INVESTMENT SECURITIES PORTFOLIO:
Total investment securities $ 5,901 $ 52,338 $ 42,405 $ 367,648 $ 468,292
---------------------------------------------------------------------
Total fair value $ 5,867 $ 51,443 $ 41,173 $ 345,837 $ 444,320
---------------------------------------------------------------------
Weighted average yield-total portfolio 5.78% 5.99% 6.78% 7.35% 7.12%
</TABLE>
(1) Other securities are comprised of equity investments and have no stated
maturity and therefore are excluded from this table.
(2) Certain notes issued by U.S. Agencies may be called, without penalty, at
the discretion of the issuer. This may cause the actual maturities to
differ significantly from the contractual maturity dates.
(3) Mortgage-backed securities are shown at contractual maturity; however, the
average life of these mortgage-backed securities may differ due to
principal prepayments.
A-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Investment securities with a carrying value of $222.9 million and $127.8
million were pledged to secure deposits, borrowings and for other purposes as
required by law or contract at December 31, 1999 and 1998, respectively.
Other securities includes unsold shares received through the exercise of
warrant received from clients, equity securities received in settlement of loans
and, investments in the FRB and the FHLB are required in order to maintain
membership and support activity levels.
Proceeds and realized losses and gains on sales of investment securities
for the years ended December 31, 1999, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sale of
available for sale $ 25,351 $ 195,863 $ 15,595
securities (1)
Available for sale
securities-gains (losses)(2) $ (19) $ 374 (8)
</TABLE>
(1) Proceeds from the sale of available for sale securities excludes $15.3
million related to the sale of equity securities classified as available for
sale which were acquired through the execution of a warrant received from
clients.
(2) Warrant income includes additional gains of $21.2 million related to
equity securities classified as available for sale which were acquired through
the execution of warrants received from clients.
NOTE 4--LOANS AND ALLOWANCE FOR LOAN LOSSES
The following summarizes the activity in the allowance for loan losses for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 24,359 $ 19,032 $ 12,600
Provision for loan losses (1) 14,994 6,552 8,429
Loan charge-offs (2,619) (1,670) (2,105)
Recoveries 1,301 445 108
----------------------------------------------
Balance, December 31 $ 38,035 $ 24,359 $ 19,032
==============================================
</TABLE>
(1) Includes $2.7 million and $183,000, and $1.4 million of charges in 1999,
1998 and 1997, respectively, to conform accounting practices for the Banks'
reserve methodologies and is included in merger and related nonrecurring
costs in the consolidated statements of operations
A-43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The following table sets forth nonperforming loans as of December 31, 1999,
1998 and 1997. Nonperforming loans are defined as loans which are on nonaccrual
status, loans which have been restructured, and loans which are 90 days past due
but are still accruing interest. Interest income foregone on nonperforming loans
totaled $234,000, $123,000, and $571,000 for the years ended December 31, 1999,
1998 and 1997, respectively. Interest income recognized on the nonperforming
loans approximated $291,000, $80,000, and $206,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $ 4,333 $ 2,033 $ 3,784
Accruing loans past due
90 days or more 10 - 158
Restructured loans 807 796 1,533
----------------------------------------------
Total nonperforming loans $ 5,150 $ 2,829 $ 5,475
==============================================
</TABLE>
At December 31, 1999 and 1998, the recorded investment in loans, for which
impairment has been recognized in accordance with SFAS No. 114 and No. 118, was
approximately $1.4 million and $2.5 million, respectively, with corresponding
valuation allowances of $365,000 and $802,000 respectively. For the years ended
December 31, 1999 and 1998, the average recorded investment in impaired loans
was approximately $1.0 million and $ 4.2 million, respectively. The Company did
not recognize interest income on impaired loans during the twelve months ended
December 31, 1999, 1998 and 1997.
The Company had $807,000 and $796,000 of restructured loans as of December
31, 1999 and 1998, respectively. There were no principal reduction concessions
allowed on restructured loans during 1999 and 1998. Interest income from
restructured loans totaled $45,000, $16,000 and $82,000 for the years ended
December 31, 1999, 1998 and 1997. Foregone interest income, which totaled $0,
$11,000 and $10,000 for the years ended December 31, 1999, 1998 and 1997 would
have been recorded as interest income if the loans had accrued interest in
accordance with their original terms prior to the restructurings.
A-44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
NOTE 5--OTHER REAL ESTATE OWNED
At December 31, 1999 and 1998, other real estate owned ("OREO") consisted
of properties acquired through foreclosure with a carrying value of $271,000 and
$966,000 million, respectively. These balances are included in interest
receivable and other assets in the accompanying consolidated balance sheets.
There was no allowance for estimated losses.
The following summarizes OREO operations, which are included in operating
expenses, for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate operations, net $ 50 $ 77 $ 247
Gain on sale of other real estate owned (37) (1) (124)
Provision for estimated losses - - 54
--------------------------------------
Net loss from other real
estate operations $ 13 $ 76 $ 177
======================================
</TABLE>
NOTE 6--PROPERTY, PREMISES AND EQUIPMENT
Property, premises and equipment at December 31, 1999 and 1998 are composed
of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 769 $ 771
Buildings and premises 2,308 2,728
Leasehold improvements 10,594 6,247
Furniture and equipment 17,463 14,620
Automobiles 306 339
---------------------------
Total 31,440 24,705
Accumulated depreciation
and amortization (12,851) (11,376)
---------------------------
Premises and equipment, net $ 18,589 $ 13,329
===========================
</TABLE>
Depreciation and amortization amounted to $3.8 million, $2.2 million and
$2.2 million for the years ended December 31, 1999, 1998 and 1997, respectively,
and have been included in occupancy and equipment expense in the accompanying
consolidated statements of operations.
A-45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
NOTE 7--DEPOSITS
Deposits as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Demand, noninterest-bearing $ 459,523 $ 335,910
MMDA, NOW and Savings 1,358,780 960,152
Time certificates, $100,000 and over 407,915 211,923
Other time certificates 74,670 94,357
-----------------------------------
Total deposits $ 2,300,888 $ 1,602,342
===================================
</TABLE>
The following table sets forth the maturity distribution of time
certificates of deposit at December 31, 1999.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------------------------------------
Seven to One to More
Three months Four to six twelve three than
(Dollars in thousands) or less months months years three years Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Time deposits, $100,000 and over $ 321,735 $ 52,084 $ 29,573 $ 4,273 $ 250 $ 407,915
Other time deposits 38,276 17,612 13,016 5,584 182 74,670
---------------------------------------------------------------------------------------------
Total $ 360,011 $ 69,696 $ 42,589 $ 9,857 $ 432 $ 482,585
=============================================================================================
</TABLE>
At December 31, 1999 and 1998, the Company held $111.1 million and $ 89.6
million, respectively from a single depositor on which the Company earned a
spread of 3.1% and 2.25%, respectively. Due to the uncertainty of the time the
deposit will remain outstanding, management has invested a significant portion
in agency securities with maturities of less than 90 days.
NOTE 8--COMPANY OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES
GBB Capital I and GBB Capital II (the "Trusts") are Delaware business
trusts wholly-owned by Greater Bay and were formed for the purpose of issuing
Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Solely Junior Subordinated Debentures ("TPS"). The TPS are
individually described below. Interest on the TPS are payable quarterly and is
deferrable, at the option of the Company, for up to five years. Following the
issuance of each TPS, the Trusts used the proceeds from the TPS offerings to
purchase a like amount of Junior Subordinated Deferrable Interest Debentures
(the "Debentures") of Greater Bay. The Debentures bear the same terms and
interest rates as the related TPS. The Debentures are the sole assets of the
Trusts and are eliminated, along with the related income statement effects, in
the consolidated financial statements. Greater Bay has fully and unconditionally
guaranteed all of the obligations of the Trusts. Under applicable regulatory
guidelines, a portion of the TPS will qualify as Tier I capital, and the
remaining portion will qualify as Tier II capital.
A-46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
On March 30, 1997, GBB Capital I completed a public offering of 800,000
shares of 9.75% Cumulative Trust Preferred Securities ("TPS I") in an aggregate
amount of $20 million. The TPS I accrue interest at an annual rate of 9.75% on
the $20 million liquidation amount of $25 per share of TPS I. The TPS I are
mandatorily redeemable, in whole or in part, upon repayment of the Debentures at
their stated maturity of April 1, 2027 or their earlier redemption. The
Debentures are redeemable prior to maturity at the option of the Company, on or
after April 1, 2002, in whole at any time or in part from time to time.
On August 12, 1998, GBB Capital II completed an offering of 30,000 shares
of Floating Rate Trust Preferred Securities, Series A ("the Series A
Securities") in an aggregate amount of $30 million. The Series A Securities
issued in the offering were sold in a private transaction pursuant to an
applicable exemption from registration under the Securities Act. In November
1998, the Company, through GBB Capital II, completed an offer to exchange the
Series A Securities for a like amount of its registered Floating Rate Trust
Preferred Securities, Series B ("TPS II"). The exchange offer was conducted in
accordance with the terms of the initial issuance of the Series A Securities.
The TPS II accrue interest at a variable rate of interest, initially at 7.1875%,
on the liquidation amount of $1,000 per share of TPS II. The interest rate
resets quarterly and is equal to 3-month LIBOR plus 150 basis points. As part of
this transaction, the Company concurrently entered into an interest rate swap to
fix the cost of the offering at 7.55% for 10 years (see note 10). The TPS II
are mandatorily redeemable, in whole or in part, upon repayment of the
Debentures at their stated maturity of September 15, 2028 or their earlier
redemption. The Debentures are redeemable prior to maturity at the option of
the Company, on or after September 15, 2008, in whole at any time or in part
from time to time.
The total amount of TPS outstanding at December 31, 1999 and 1998 was $50
million and the dividends paid on TPS was $4.3 million, $2.8 million and $1.5
million in 1999, 1998 and 1997, respectively.
NOTE 9--BORROWINGS
Other borrowings are detailed as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Other borrowings:
Short term borrowings:
Securities sold under agreements
to repurchase $ 40,100 $ 7,135
Other short term notes payable - 1,344
Advances under credit lines 7,000 500
---------------------
Total short term borrowings 47,100 8,979
---------------------
Long term borrowings:
Securities sold under agreements
to repurchase 10,000 50,000
FHLB advances 12,000 22,000
Promissory notes - 2,450
---------------------
Total other long term borrowings 22,000 74,450
---------------------
Total other borrowings $ 69,100 $83,429
=====================
Subordinated notes $ - $ 3,000
---------------------
Total subordinated debt $ - $ 3,000
=====================
</TABLE>
A-47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
During the years ended December 31, 1999 and 1998, the average balance of
securities sold under short term agreements to repurchase was $14,772,192 and
$10,129,332, respectively, and the average interest rates during those periods
were 5.64% and 5.17%, respectively. Securities sold under short term agreements
to repurchase generally mature within 90 days of dates of purchase.
During the years ended December 31, 1999 and 1998, the average balance of
federal funds purchased was $186,302 and $428,554, respectively, and the average
interest rates during those periods were 5.29% and 5.35%, respectively. There
were no such balances outstanding at December 31, 1999 or 1998.
The Company has sold securities under long term agreements to repurchase
which mature in the year 2003 and have an average interest rate of 5.32%. The
counterparties to these agreements have put options which give them the right to
demand early repayment. As of December 31, 1999, $10.0 million of these
borrowings are subject to early repayment beginning in 2000.
The FHLB advances will mature in the year 2003 and have an average interest
rate of 5.47%. The advances are collateralized by securities pledged to the
FHLB. Under the terms of the advances, the FHLB has a put option which gives it
the right to demand early repayment beginning in 1999.
The short term notes payable, which bore an interest rate of 13.76% and
provided for maturity on April 15, 2000, were issued to PBFC's officers along
with other accredited investors within the definition of Rule 501 under the
Securities Act of 1933, as amended. The Company redeemed these notes in January
1999.
On March 15, 1999 the Company redeemed the $3.0 million in subordinated
debt issued in 1995. The Company paid a premium of $150,000 ($88,000 net of tax)
on the pay off of the debt. The premium was recorded, net of taxes, as an
extraordinary item in March 1999.
NOTE 10 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company currently uses a single interest-rate swap to convert its
floating-rate debt (the TPS II) to fixed rates. This swap was entered into
concurrently with the issuance of the debt being hedged. This swap is accounted
for as a cash flow hedge under SFAS No. 133. This swap possesses a term equal
to the non-callable term of the debt, with a fixed pay rate and a receive rate
indexed to rates paid on the debt and a notional amount equal to the amount of
the debt being hedged. As the specific terms and notional amount of the swap
exactly match those of the debt being hedged the Company meets the "no
ineffectiveness" criteria of SFAS No. 133. As such the swap is assumed to be
100% effective and all changes in the fair value of the hedge are recorded in
other comprehensive income with no impact on the income statement for any
ineffective portion. As of December 31, 1999, the unrealized gain on the cash
flow hedge was $1,528,000, net of income taxes, which was included in the
balance of accumulated other comprehensive income. The floating rate TPS II
combined with the cash flow hedge created a synthetic fixed rate debt
instrument. The unrealized gain on the cash flow hedge approximated the
unrealized gain the Company would have incurred if it had issued a fixed rate
debt instrument. Under current accounting practices, as required by SFAS No.
133, the Company was required to record the unrealized gain on the synthetic
fixed rate debt instrument, but it would not have been required to record an
unrealized gain if it had issued fixed rate debt.
The notional amount of the swap is $30.0 million with a term of 10 years
expiring on September 15, 2008. The Company intends to use the swap as a hedge
of the related debt for 10 years. The periodic settlement date of the swap
results in the reclassifying as earnings the gains or losses that are reported
in accumulated comprehensive income. For the year ended December 31, 1997, the
Company did not have any derivative instruments.
A-48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The Company minimizes the credit (or repayment) risk in derivative
instruments by entering into transactions with high-quality counterparties that
are reviewed periodically by the Company's credit committee.
NOTE 11--INCOME TAXES
Income tax expense was comprised of the following for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 13,819 $ 9,627 $ 9,628
State 4,370 3,400 2,950
---------------------------------------
Total current 18,189 13,027 12,578
---------------------------------------
Deferred:
Federal (4,993) (2,601) (3,333)
State (1,335) (707) (925)
---------------------------------------
Total deferred (6,328) (3,308) (4,258)
---------------------------------------
Total expense $ 11,861 $ 9,719 $ 8,320
=======================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The tax effects of
temporary differences that gave rise to significant portions of the deferred tax
assets and liabilities at December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses $ 12,192 $ 8,037
State income taxes 3,755 2,387
Deferred compensation 2,218 1,762
Unrealized losses on securities 7,136 70
Accumulated depreciation 191 (33)
Net operating losses 14 159
Purchase allocation adjustments 8 22
Other (499) (326)
------------------------------
Net deferred tax asset $ 25,015 $ 12,078
==============================
</TABLE>
Management believes that the Company will fully realize its total deferred
income tax assets as of December 31, 1999 based upon the Company's recoverable
taxes from prior carryback years, and its current level of operating income.
At December 31, 1999, the Company had a federal tax net operating loss
carryforward of approximately $40,000 expiring in the beginning of the year
2010.
A-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Under provisions of the United States income tax laws these loss carryovers
are subject to limitation due to the acquisition of Pacific Rim Bancorporation
in 1998. Management does not believe that these limitations will prevent the
realization of the benefit of the loss carryovers during the carryover periods.
A reconciliation from the statutory income tax rate to the consolidated
effective income tax rate follows, for the years ended December 31, 1999, 1998
and 1997:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
California franchise tax
expense, net of federal
income tax benefit 4.9% 5.8% 6.0%
---------------------------------------
39.9% 40.8% 41.0%
Tax exempt income -2.5% -2.4% -2.0%
Contribution of appreciated securities -6.9% -1.6% 0.0%
Nondeductible merger
costs 0.3% 1.2% 2.2%
Other, net -0.9% -5.5% -4.7%
---------------------------------------
Effective income tax rate 29.9% 32.5% 36.5%
=======================================
</TABLE>
NOTE 12--OTHER INCOME AND OPERATING EXPENSES
Other income in 1999, 1998 and 1997 included warrant income of $14.5
million, $945,000 and $1.2 million net of related employee incentives of $7.3
million, $396,000 and $500,000, respectively. The Company occasionally receives
warrants to acquire common stock from companies that are in the start-up or
development phase. The timing and amount of income derived from the exercise
and sale of client warrants typically depend upon factors beyond the control of
the Company, and cannot be predicted with any degree of accuracy and are likely
to vary materially from period to period. Occupancy costs for the years ended
December 31, 1999, 1998 and 1997 were $6.7 million, $5.5 million and $5.1
million, respectively.
Merger and other related nonrecurring costs for the years ended December
31, 1999, 1998 and 1997 were comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial advisory and professional fees $ 1,627 $ 1,101 $ 1,083
Charges to conform accounting practices 2,745 183 1,350
Other costs 5,959 1,377 900
---------------------------------------------
Total $ 10,331 $ 2,661 $ 3,333
=============================================
</TABLE>
Other costs include severance and other compensation expenses, charges for
the write-off of assets retired as a result of the merger, and other expenses
including printing costs and filing fees.
A-50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Other expenses for the years ended December 31, 1999, 1998 and 1997 were
comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone, postage and supplies $ 2,515 $ 2,192 $ 1,785
Legal and other professional fees 2,188 2,447 2,523
Marketing and promotion 1,771 1,439 1,507
Client services 1,224 656 545
Data processing 1,137 665 685
Directors fees 792 888 969
Insurance 491 402 375
FDIC insurance and regulatory
assessments 457 400 361
Other real estate owned 13 76 177
Other 3,999 4,906 3,912
---------------------------------------------
$ 14,587 $ 14,071 $ 12,839
=============================================
</TABLE>
To support the Greater Bay Bancorp Foundation (the "Foundation"), the
Company contributed appreciated securities, which had an unrealized gain of $7.8
million in 1999 and $1.3 million in 1998. In 1999, the Company incurred $4.4
million in compensation and other expenses in connection with these appreciated
securities. The Company recorded $12.2 million in 1999 and $1.3 million in 1998
of expense for the contribution to the Foundation, which is included in
operating expenses.
In July 1995, the Company settled a lawsuit of $1.1 million, net of tax.
The Company recovered those losses through insurance coverage for this
settlement in 1997. However, due to the uncertainty associated with the
recovery, the Company reflected the settlement expense as a charge to 1995
earnings, and the associated recovery in 1997 as a recovery to earnings.
NOTE 13--EMPLOYEE BENEFIT PLANS
Stock Option Plan
On November 19, 1997, the Company's shareholders approved an amendment of
the Greater Bay Bancorp 1996 Stock Option Plan (the "Bancorp Plan"), to increase
by 912,652 the number of shares of Greater Bay stock issuable under the Bancorp
Plan. This was done to accommodate the increased number of eligible employees as
a result of the merger with PBC.
Under the terms of the respective mergers, all stock option plans of BAB
and BBC were terminated at the time of merger and all outstanding options from
these plans were assumed by the Bancorp Plan. Outstanding options from the BAB
plan of 29,834 shares (converted at a ratio of 1.38682) and outstanding options
from the BBC Plan of 108,318 shares (converted at a ratio of 0.6833) were
assumed by the Bancorp Plan.
Options issued under the Bancorp Plan may be granted to employees and
nonemployee directors and may be either incentive or nonqualified stock options
as defined under current tax laws. The exercise price of each option must equal
the market price of the Company's stock on the date of grant. The term of an
option may not exceed 10 years and generally vests over a five year period.
A-51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
At December 31, 1999 the total authorized shares issuable under the Bancorp
Plan was approximately 2,279,000 shares and the number of shares available for
future grants was approximately 110,000 shares.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under the
provisions of SFAS No. 123, the Company is encouraged, but not required, to
measure compensation costs related to its employee stock compensation plans
under the fair value method. If the Company elects not to recognize compensation
expense under this method, it is required to disclose the pro forma net income
and net income per share effects based on the SFAS No. 123 fair value
methodology. The Company implemented the requirements of SFAS No. 123 in 1997
and has elected to adopt the disclosure provisions of this statement.
At December 31, 1999, the Company had one stock option plan, which is
described above. The Company applies Accounting Principles Board ("APB") Opinion
No. 25 and related interpretations in accounting the Bancorp Plan. Accordingly,
no compensation cost has been recognized for its stock option plan. Had
compensation for the Company's stock option plan been determined consistent with
SFAS No. 123, the Company's net income per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
(Dollars in thousands, except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As reported $27,711 $20,158 $14,485
Pro forma $25,249 $18,620 $14,012
Basic net income per share
As reported $ 2.28 $ 1.69 $ 1.29
Pro forma 2.08 $ 1.56 $ 1.25
Diluted net income per share
As reported $ 2.17 $ 1.59 $ 1.21
Pro forma $ 1.97 $ 1.47 $ 1.17
</TABLE>
A-52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1999, 1998 and 1997, respectively; dividend yield of
1.5%, 1.75% and 1.8%; expected volatility of 29.69%, 39.84% and 22.9%; risk free
rates of 6.29%, 4.54% and 6.3%. The weighted average expected life is 5 years.
No adjustments have been made for forfeitures. The actual value, if any, that
the option holder will realize from these options will depend solely on the
increase in the stock price over the option price when the options are
exercised.
A summary of the Company's stock option plan as of December 31, 1999, 1998,
and 1997 and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
(000's) Exercise Price (000's) Exercise Price (000's) Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,830 $ 18.54 1,500 $ 11.53 1,304 $ 7.20
Granted 669 37.70 612 30.96 405 21.14
Exercised (259) 8.87 (250) 7.15 (180) 4.97
Forfeited (71) 25.12 (32) 16.38 (29) 7.76
-----------------------------------------------------------------------------------------
Outstanding at end of year 2,169 25.39 1,830 18.54 1,500 11.53
-----------------------------------------------------------------------------------------
Options exercisable at year-end 810 13.71 745 9.14 770 7.14
-----------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year $ 12.22 $ 12.19 $ 7.23
-----------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999 (as adjusted for the 2-for-1 stock split).
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------- ----------------------------------------
Number Number
Exercise Outstanding Weighted Average Weighted Average Exercisable Weighted Average
Price Range (000's) Exercise Price Remaining Life (years) (000's) Exercise Price
- --------------------------------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <S> <C>
$3.06 - $5.25 118 $ 3.93 3.11 107 $ 4.31
$5.30 - $9.38 333 7.28 4.97 309 7.16
$10.88 - $17.31 264 13.07 7.12 188 13.42
$21.13 - $29.50 359 25.30 8.17 115 24.88
$29.56 - $35.03 504 33.49 8.96 90 33.58
$35.88 - $40.81 592 38.50 9.96 1 39.50
</TABLE>
401(k) Savings Plan
The Company has a 401(k) tax deferred savings plan under which eligible
employees may elect to defer a portion of their salary (up to 15%) as a
contribution to the plan. The Company matches the employees' contributions at a
rate set by the Board of Directors (currently 62.5% of the first 8% of deferral
of an individual's total compensation). The matching contribution vests ratably
over the first four years of employment.
For the years ended December 31, 1999, 1998 and 1997, the Company
contributed $1,056,000, $812,000 and $672,000, respectively to the 401(k) plan.
A-53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Employee Stock Purchase Plan
The Company has established an Employee Stock Purchase Plan, as amended,
under section 423(b) of the Internal Revenue Code which allows eligible
employees to set aside up to 15% of their compensation toward the purchase of
the Company's stock for an aggregate total of 267,868 shares. Under the plan the
purchase price is 85% of the lower of the fair value at the beginning or end of
each three month offering period. During 1999, employees purchased 41,651 shares
of common stock for an aggregate purchase price of $1,031,000 compared to the
purchase of 29,670 shares of common stock for an aggregate purchase price of
$656,000 in 1998 and 30,320 shares of common stock for an aggregate purchase
price of $347,000 in 1997. There were 62,995 shares remaining in the plan
available for purchase by employees at December 31, 1999.
All share amounts have been restated to reflect the 2-for-1 stock split
declared to shareholders of record as of April 30, 1998.
Supplemental Employee Compensation Benefits Agreements
The Company has entered into supplemental employee compensation benefits
agreements with certain executive and senior officers. Under these agreements,
the Company is generally obligated to provide for each such employee or their
beneficiaries, during their life for a period of up to 15 to 20 years after
the employee's death, disability or retirement, benefits as defined in each
specific agreement. The agreement also provides for a death benefit for the
employee. The estimated present value of future benefits to be paid is being
accrued over the vesting period of the participants. The related accumulated
accrued liability of at December 31, 1999 and 1998 is approximately $3.0
million and $2.2 million, respectively. The actuarial assumptions used for
determining the present value of the projected benefit obligation include a 7%
discount rate. Expenses accrued for this plan for the years December 31, 1999,
1998 and 1997 totaled $800,000, $540,000 and $503,000, respectively. Depending
on the agreement, the Company and the employees are beneficiaries of life
insurance policies that have been purchased as a method of financing the
benefits under the agreements. At December 31, 1999 and 1998, the Company's
cash surrender value of these policies was approximately $43.8 million and
$32.0 million, respectively and is included in other assets. The income
recognized on these policies was $1.4 million, $870,000 and $325,000 in 1999,
1998 and 1997, respectively, and is included in other income.
Deferred Compensation Plan
Effective November 19, 1997, the Company adopted the Greater Bay Bancorp
1997 Elective Deferral Compensation Plan (the "Deferred Plan") that allows
eligible officers and directors of the Company to defer a portion of their
bonuses, director fees and other compensation. The deferred compensation will
earn interest calculated annually based on a short-term interest reference rate.
All participants are fully vested at all times in their contributions to the
Deferred Plan. At December 31, 1999 and 1998, $1.9 million and $834,000,
respectively, of deferred compensation under this plan is included in other
liabilities in the accompanying consolidated balance sheets.
Additionally, under deferred compensation agreements that were established
at PBC prior to its merger with the Company, there was approximately $814,000
and $1.1 million of deferred compensation which is included in other liabilities
at December 31, 1999 and 1998, respectively.
Change of Control
In the event of a change in control, the supplemental employee compensation
benefits agreements with certain executive and senior officers may require the
Company to make certain payments under those agreements. The company also has
plans in place which would require certain payments be made to any employee
whose employment is terminated pursuant to a change in control. These potential
liabilities are currently not recognized in the accompanying consolidated
financial statements.
A-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
NOTE 14--RELATED PARTY TRANSACTIONS
The Company has, and expects to have in the future, banking transactions in
the ordinary course of business with directors, executive officers and their
affiliates. These transactions are entered into under terms and conditions equal
to those entered into in arms length transactions and are made subject to
approval by the Directors' Loan Committee and the Board of Directors of the Bank
extending the credit. An analysis of total loans to related parties for the
years ended December 31, 1999 and 1998 is shown below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $ 38,720 $ 17,757
Additions 20,933 34,275
Repayments (39,502) (13,312)
-----------------------
Balance, December 31 $ 20,151 $ 38,720
=======================
Undisbursed commitments,
at year end $ 8,003 $ 5,799
=======================
</TABLE>
NOTE 15--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain facilities at which it conducts its operations.
Future minimum lease commitments under all noncancelable operating leases as of
December 31, 1999 are below:
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31,
- ----------------------------------------------------------------------
<S> <C>
2000 $ 3,783
2001 4,286
2002 3,596
2003 1,962
2004 1,690
Thereafter 8,902
---------
Total $ 24,219
=========
</TABLE>
A-55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The Company subleases that portion of the available space that is not
utilized. Sublease rental income for the years ended December 31, 1999, 1998,
and 1997 was $572,000, $607,000, and $882,000, respectively. Gross rental
expense for the years ended December 31, 1999, 1998, and 1997 was $4.8 million,
$3.7 million, and $3.5 million, respectively.
Other Commitments and Contingencies
The Company occasionally receives warrants to acquire common stock from
borrowers that are in the start-up or development phase as consideration for
provided financing. As of December 31, 1999, the Company had a portion of its
warrants and common stock of these clients in escrow with an approximate fair
value of $2.8 million. These equity securities are being held in escrow for the
Company's benefit pending resolution of certain contingencies. Although
realization is not assured, Management believes it is more likely than not that
this amount will be realized. The amount considered realizable could be reduced
if stock prices of the companies fall.
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as guarantees and commitments to extend
credit, that are not reflected in the accompanying consolidated financial
statements. Commitments to fund loans were $723.1 million and $563.0 million and
letters of credit were $48.2 million and $17.5 million, at December 31, 1999 and
1998, respectively. The Company's exposure to credit loss is limited to amounts
funded or drawn; however, at December 31, 1999, no losses are anticipated as a
result of these commitments.
Loan commitments which have fixed expiration dates and require the payment
of a fee are typically contingent upon the borrower meeting certain financial
and other covenants. Approximately $174.6 million of these commitments relate to
real estate construction and land loans and are expected to fund within the next
12 months. However, the remainder relates primarily to revolving lines of credit
or other commercial loans, and many of these commitments are expected to expire
without being drawn upon, therefore the total commitments do not necessarily
represent future cash requirements. The Banks evaluate each potential borrower
and the necessary collateral on an individual basis. Collateral varies, but may
include real property, bank deposits, debt or equity securities, or business
assets.
Stand-by letters of credit are conditional commitments written by the Banks
to guarantee the performance of a client to a third party. These guarantees are
issued primarily related to purchases of inventory by the Banks' commercial
clients, and are typically short-term in nature. Credit risk is similar to that
involved in extending loan commitments to clients, and the Banks accordingly use
evaluation and collateral requirements similar to those for loan commitments.
In the ordinary course of business there are various assertions, claims and
legal proceedings pending against the Company. Management is of the opinion that
the ultimate resolution of these proceedings will not have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
NOTE 16 - SHAREHOLDERS' RIGHTS PLAN
In 1998 Greater Bay adopted a shareholder rights plan designed to maximize
the long-term value of the Company and to protect the Company's shareholders
from improper takeover tactics and takeover bids that are not fair to all
shareholders.
In accordance with the plan, preferred share purchase rights were
distributed as a dividend at the rate of one right for each common share held of
record as of the close of business on November 28, 1998. The rights, which are
not immediately exercisable, entitle the holders to purchase one one-hundredth
of a share of Series A Preferred Stock at a price of $145.00 upon the occurrence
of certain triggering events. In the event of an acquisition not approved by the
Board, each right enables its holder (other than the acquirer) to purchase the
Preferred Stock at 50% of the market price. Further, in the event the Company is
acquired in an unwanted merger or business combination, each right enables the
holder to purchase shares of the acquiring entity at a similar discount. Under
certain circumstances, the rights may be exchanged for common shares of the
Company. The Board may, in its sole discretion, redeem the rights at any time
prior to any of the triggering events.
A-56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
The rights can be exercised and separate rights certificates distributed
only if any of the following events occur: acquisition by a person of 10% or
more of the Company's common share; a tender offer for 10% or more of the
Company's common shares; or ownership of 10% or more of the Company's common
shares by a shareholder whose actions are likely to have a material adverse
impact on the Company or shareholder interests. The rights will initially trade
automatically with the common shares. The rights are not deemed by the Board of
Directors to be presently exercisable.
NOTE 17--REGULATORY MATTERS
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and regulatory framework for prompt corrective
action, the Banks must meet specific capital guidelines that involve
quantitative measures of the Banks' assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The Banks'
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum capital amounts and ratios (as defined in
the regulations) and are set forth in the table below. At December 31, 1999 and
1998 the Company and the Banks met all capital adequacy requirements to which
they are subject.
A-57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Under the FDICIA prompt corrective action provisions applicable to banks,
the most recent notification from the FDIC or OCC categorized each of the Banks
as well capitalized. To be categorized as well capitalized, the institution must
maintain a total risk-based capital ratio as set forth in the following table
and not be subject to a capital directive order. There are no conditions or
events since that notification that management believes have changed the risk-
based capital category of any of the Banks. The Company and the Banks' actual
1999 and 1998 capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
As of December 31, 1999 Actual Adequacy Purposes Action Provisions
---------------------- -------------------- ----------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------ -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (To Risk Weighted Assets):
Greater Bay Bancorp $ 237,035 10.74% $ 176,591 8.00% N/A
Bay Area Bank 15,104 10.50 11,511 8.00 $ 14,398 10.00%
Bay Bank of Commerce 12,004 10.12 9,484 8.00 11,856 10.00
Cupertino National Bank 97,081 11.03 70,398 8.00 87,997 10.00
Golden Gate Bank 14,645 10.19 11,494 8.00 14,368 10.00
Mid-Peninsula Bank 65,923 10.02 52,656 8.00 65,820 10.00
Peninsula Bank of Commerce 22,458 10.86 16,544 8.00 20,680 10.00
Tier 1 Capital (To Risk Weighted Assets):
Greater Bay Bancorp $ 205,649 9.32% $ 88,296 4.00% N/A
Bay Area Bank 13,285 9.23 5,756 4.00 $ 8,634 6.00%
Bay Bank of Commerce 10,507 8.86 4,742 4.00 7,113 6.00
Cupertino National Bank 82,337 9.36 35,199 4.00 52,798 6.00
Golden Gate Bank 12,846 8.94 5,747 4.00 8,621 6.00
Mid-Peninsula Bank 57,692 8.77 26,328 4.00 39,492 6.00
Peninsula Bank of Commerce 19,859 9.60 8,272 4.00 12,408 6.00
Tier 1 Capital Leverage (To Average Assets):
Greater Bay Bancorp $ 205,649 7.93% $ 103,691 4.00% N/A
Bay Area Bank 13,285 7.80 6,815 4.00 $ 8,519 5.00%
Bay Bank of Commerce 10,507 7.12 5,900 4.00 7,375 5.00
Cupertino National Bank 82,337 8.05 40,896 4.00 51,120 5.00
Golden Gate Bank 12,846 6.55 7,844 4.00 9,805 5.00
Mid-Peninsula Bank 57,692 7.47 30,883 3.00 38,604 5.00
Peninsula Bank of Commerce 19,859 7.32 10,847 4.00 13,559 5.00
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
As of December 31, 1998 Actual Adequacy Purposes Action Provisions
---------------------- -------------------- ----------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------ -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (To Risk Weighted Assets):
Greater Bay Bancorp $ 187,725 12.74% $ 118,802 8.00% N/A
Bay Area Bank 15,800 13.77 9,179 8.00 $ 11,474 10.00%
Bay Bank of Commerce 11,817 9.50 9,976 8.00 12,470 10.00
Cupertino National Bank 59,224 10.12 46,822 8.00 58,527 10.00
Golden Gate Bank 10,194 11.01 7,406 8.00 9,257 10.00
Mid-Peninsula Bank 47,111 11.51 32,747 8.00 40,963 10.00
Peninsula Bank of Commerce 18,256 12.37 11,809 8.00 14,761 10.00
Tier 1 Capital (To Risk Weighted Assets):
Greater Bay Bancorp $ 153,717 10.03% $ 59,401 4.00% N/A
Bay Area Bank 14,365 12.52 4,590 4.00 $ 6,885 6.00%
Bay Bank of Commerce 10,837 8.70 4,988 4.00 7,482 6.00
Cupertino National Bank 48,845 8.35 23,411 4.00 35,116 6.00
Golden Gate Bank 9,036 9.76 3,703 4.00 5,554 6.00
Mid-Peninsula Bank 41,990 10.26 16,373 4.00 24,560 6.00
Peninsula Bank of Commerce 16,408 11.12 5,904 4.00 8,857 6.00
Tier 1 Capital Leverage (To Average Assets):
Greater Bay Bancorp $ 153,717 7.97% $ 74,254 4.00% N/A
Bay Area Bank 14,365 10.34 4,590 4.00 $ 6,948 5.00%
Bay Bank of Commerce 10,837 7.90 5,520 4.00 6,901 5.00
Cupertino National Bank 48,845 7.47 26,138 4.00 32,673 5.00
Golden Gate Bank 9,036 9.30 5,243 4.00 6,554 5.00
Mid-Peninsula Bank 41,990 8.54 15,927 3.00 26,544 5.00
Peninsula Bank of Commerce 16,408 6.65 9,759 4.00 12,198 5.00
</TABLE>
A-58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
NOTE 18--RESTRICTIONS ON SUBSIDIARY TRANSACTIONS
Total dividends which may be declared by the Banks without receiving prior
approval from regulatory authorities are limited to the lesser of the Banks'
retained earnings or the net income of the Banks for the latest three fiscal
years, less dividends previously declared during that period.
The Banks are subject to certain restrictions under the Federal Reserve
Act, including restrictions on the extension of credit to affiliates. In
particular, the Banks are prohibited from lending to Greater Bay unless the
loans are secured by specified types of collateral. Such secured loans and other
advances from the Banks are limited to 10% of the Banks' shareholders' equity,
or a maximum of $19.2 million at December 31, 1999. No such advances were made
during 1999 or exist as of December 31, 1999.
NOTE 19-EARNINGS PER SHARE
Per Share Data
Net income per share is stated in accordance with SFAS No. 128 "Earnings
per Share". Basic net income per share is computed by dividing net income by
the weighted average number of common shares outstanding during the year.
Diluted net income per share is computed by dividing net income by the weighted
average number of common shares plus common equivalent shares outstanding
including dilutive stock options. All years presented include the effect of the
2-for-1 stock split effective as of April 30, 1998.
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted net income per share computations for the
years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
For the year ended December 31, 1999
-----------------------------------------------
Income Shares Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- ------------------------------------------------ -----------------------------------------------
<S> <C> <C> <C>
Net income $ 27,711
Basic net income per share:
Income available to common shareholders 27,711 12,146,000 $ 2.28
Effect of dilutive securities:
Stock options -- 648,000 --
---------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 27,711 12,794,000 $ 2.17
=============================================
<CAPTION>
For the year ended December 31, 1998
-----------------------------------------------
Income Shares Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- ------------------------------------------------ -----------------------------------------------
<S> <C> <C> <C>
Net income $ 20,158
Basic net income per share:
Income available to common shareholders 20,158 11,927,000 $ 1.69
Effect of dilutive securities:
Stock options -- 756,000 --
---------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 20,158 12,683,000 $ 1.59
=============================================
<CAPTION>
For the year ended December 31, 1997
-----------------------------------------------
Income Shares Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- ------------------------------------------------ -----------------------------------------------
<S> <C> <C> <C>
Net income $ 14,485
Basic net income per share:
Income available to common shareholders 14,485 11,243,000 $ 1.29
Effect of dilutive securities:
Stock options -- 696,000 --
---------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 14,485 11,939,000 $ 1.21
=============================================
</TABLE>
There were options to purchase 483,000 shares and 51,000 shares that were
considered anti-dilutive whereby the options' exercise price was greater than
the average market price of the common shares, during the years ended December
31, 1999 and 1998, respectively. There were no options that were considered
anti-dilutive during the year ended December 31, 1997.
Weighted average shares outstanding and all per share amounts included in
the consolidated financial statements and notes thereto are based upon the
increased number of shares giving retroactive effect to the 1999 mergers with
BCS at a 0.6833 conversion ratio and BA Bancshares at a 1.38682 conversion
ratio, the 1998 mergers with PRB and PBFC at a total of 950,748 and 298,000
shares, respectively, and the 1997 merger with PBC at a 0.96550 conversion
ratio.
NOTE 20--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The financial statements of Greater Bay Bancorp (parent company only) are
presented below:
PARENT COMPANY ONLY--BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,392 $ 6,354
Investment in subsidiaries 193,255 142,641
Other investments 16,043 17,936
Subordinated debentures
issued by subsidiary - 3,000
Other assets 16,925 9,630
---------------------------
Total assets $ 227,615 $ 179,561
===========================
Liabilities and
shareholders' equity:
Subordinated debt 58,547 54,547
Other liabilities 8,313 6,578
---------------------------
Total liabilities 66,860 61,125
Shareholders' equity:
Common stock 92,096 66,711
Accumulated other comprehensive income (4,748) (59)
Retained earnings 73,407 51,784
---------------------------
Total shareholders' equity 160,755 118,436
---------------------------
Total liabilities and
shareholders' equity $ 227,615 $ 179,561
===========================
</TABLE>
A-59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
PARENT COMPANY ONLY-INCOME STATEMENTS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest income $ 489 $ 1,021 $ 400
Cash dividend from subsidiaries - 675 365
Other income - 71 501
---------------------------------
Total 489 1,767 1,266
---------------------------------
Expenses:
Interest expense 4,382 3,195 1,458
Salaries 15,684 8,908 5,978
Occupancy and equipment 3,820 2,031 1,218
Merger expenses 3,283 1,877 712
Other expenses 5,494 3,447 1,887
Less: rentals and fees received
from Banks (26,201) (15,866) (10,201)
---------------------------------
Total 6,462 3,592 1,052
---------------------------------
Income (loss) before taxes and equity
in undistributed net income of subsidiaries (5,973) (1,825) 214
Income tax benefit (2,573) (1,616) (249)
---------------------------------
Income (loss) before equity in undistributed
net income of subsidiaries (3,400) (209) 463
---------------------------------
Equity in undistributed net income of
subsidiaries 31,111 20,367 14,022
---------------------------------
Net income $ 27,711 $20,158 $14,485
=================================
</TABLE>
A-60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
PARENT COMPANY ONLY--STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows-operating activities
Net income $ 27,711 $ 20,158 $ 14,485
Reconciliation of net income
to net cash from operations:
Equity in undistributed net
income of subsidiaries (31,111) (20,367) (14,022)
Net change in other assets (9,093) (4,464) (1,944)
Net change in other liabilities 4,332 2,140 2,442
--------------------------------------------
Operating cash flow, net (8,161) (2,533) 961
--------------------------------------------
Cash flows-investing activities
Purchases of available for sale
securities (20,825) (84,130) (8,293)
Proceeds from sale and maturities
of available for sale securities 20,980 71,939 3,156
Proceeds from sale of OREO - 407 -
Dividends from subsidiaries 3,966 3,249 3,617
Capital contribution to
the subsidiaries (27,218) (17,500) (13,818)
--------------------------------------------
Investing cash flows, net (23,097) (26,035) (15,338)
--------------------------------------------
Cash flows-financing activities
Net change in other borrowings - short term 7,000 - -
Proceeds from private placement of stock 18,954 - -
Proceeds from issuance of
subordinated debt - 30,000 20,618
Stock issued in dividend reinvestment plan 171 - -
Proceeds from exercise
of stock options and employees
stock purchases 6,259 5,323 2,985
Payment of cash dividends (6,088) (5,869) (4,643)
--------------------------------------------
Financing cash flows, net 26,296 29,454 18,960
--------------------------------------------
Net increase in cash and
cash equivalents (4,962) 886 4,563
Cash and cash equivalents
at the beginning of the year 6,354 5,468 905
--------------------------------------------
Cash and cash equivalents
at end of the year $ 1,392 $ 6,354 $ 5,468
============================================
</TABLE>
A-61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
NOTE 21--FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments. The estimated fair value of financial
instruments of the Company as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ---------------------------
Carrying Carrying
(Dollars in thousands) Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 95,416 $ 95,416 $ 78,660 $ 78,660
Short term investments 221,207 221,207 140,376 140,376
Investment securities 470,105 464,861 397,412 398,332
Loans, net 1,715,284 1,699,747 1,184,752 1,186,740
Accrued interest receivable - - - -
Financial liabilities:
Deposits:
Demand, noninterest-bearing 459,523 459,523 335,910 335,910
MMDA, NOW and Savings 1,358,780 1,358,780 960,152 960,152
Time certificates, $100,000 and over 407,915 403,835 211,923 204,206
Other time certificates 74,670 73,923 94,357 108,601
Other borrowings 69,100 68,409 83,429 85,000
Subordinated debt - - 3,000 2,999
Company obligated mandatory redeemable
preferred securities of subsidiary trust holding
solely junior subordinated debentures 50,000 48,468 50,000 48,829
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Cash Equivalents
The carrying value reported in the balance sheet for cash and cash
equivalents approximates fair value.
A-62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
Investment Securities
The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns. The fair value of longer term investments, except certain state and
municipal securities, is estimated based on quoted market prices or bid
quotations from securities dealers.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of performing fixed rate loans is calculated by
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. The fair value of performing variable rate loans is judged to
approximate book value for those loans whose rates reprice in less than 90 days.
Rate floors and rate ceilings are not considered for fair value purposes as the
number of loans with such limitations is not significant.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
Deposit Liabilities and Borrowings
The fair value for all deposits without fixed maturities and short term
borrowings is considered to be equal to the carrying value. The fair value for
fixed rate time deposits and subordinated debt are estimated by discounting
future cash flows using interest rates currently offered on time deposits or
subordinated debt with similar remaining maturities. The fair value of core
deposits does not reflect the market core deposits premium of approximately
10%-12%. Additionally, the fair value of deposits does not include the benefit
that results from the low cost of funding provided by the Company's deposits
as compared to the cost of borrowing funds in the market.
Commitments to Extend Credit and Standby Letters of Credit
The majority of the Company's commitments to extend credit carry current
market interest rate if converted to loans. Because these commitments are
generally unassignable by either the Company or the borrower, they only have
value to the Company and the borrower. The estimated fair value approximates the
recorded deferred fee amounts and is excluded from the table.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale, at one time, the Company's entire holdings of a particular
financial instrument. Fair value estimates are based on judgments regarding
future expected loss experience, current economic condition, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective
A-63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have significant effect on
fair value estimates and have been considered in many of the estimates.
NOTE 22--ACTIVITY OF BUSINESS SEGMENTS
In 1998, the Company adopted SFAS No. 131. The prior year's segment
information has been restated to present the Company's two reportable segments,
community banking and trust operations.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." Segment data includes
intersegment revenue, as well as charges allocating all corporate-headquarters
costs to each of its operating segments. Intersegment revenue is recorded at
prevailing market terms and rates and is not significant to the results of the
segments. This revenue is eliminated in consolidation. The Company evaluates the
performances of its segments and allocates resources to them based on net
interest income, other income, net income before income taxes, total assets and
deposits.
The Company is organized primarily along community banking and trust
divisions. Ten of the divisions have been aggregated into the "community
banking" segment. Community banking provides a range of commercial banking
services to small and medium-sized businesses, real estate developers, property
managers, business executives, professional and other individuals. The GBB Trust
division has been shown as the "trust operations" segment. The Company's
business is conducted principally in the U.S.; foreign operations are not
material.
The following table shows each segments key operating results and financial
position for the years ended or as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------- ------------------------
Community Trust Community Trust Community Trust
(Dollars in thousands) banking operations banking operations banking operations
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 107,256 $ 369 $ 80,968 $ 859 $ 67,102 $ 141
Other income 14,312 3,007 7,157 2,488 6,274 2,092
Operating expenses 30,015 2,853 32,060 2,429 33,803 1,966
Net Income before income
taxes(1) 91,945 121 56,005 918 39,573 267
Total assets 2,590,605 -- 1,845,471 -- 1,440,786 --
Deposits 2,243,057 57,831 1,534,803 67,539 1,213,388 66,321
Assets under management -- 697,435 -- 649,336 -- 577,746
</TABLE>
/1/ Includes intercompany earnings allocation charge which is eliminated in
consolidation
A-64
<PAGE>
A reconciliation of total segment net interest income and other income
combined, net income before income taxes, and total assets to the consolidated
numbers in each of these categories for the years ended December 31, 1999, 1998
and 1997 is presented below.
<TABLE>
<CAPTION>
As of and for As of and for As of and for
the Year the Year the Year
Ended Ended Ended
December 31, December 31, December 30,
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest income and other income
Total segment net interest income and other income $ 124,944 $ 91,412 $ 75,609
Parent company net interest income and other income (3,893) (1,357) 309
------------ ------------ -----------
Consolidated net interest income and other income $ 121,051 $ 90,055 $ 75,918
============ ============ ===========
Net Income before taxes
Total segment net income before income taxes $ 92,066 $ 56,923 $ 39,840
Parent company net interest before income taxes (32,174) (17,620) (9,486)
------------ ------------ -----------
Consolidated net income before income taxes $ 59,892 $ 39,303 30,354
============ ============ ===========
Total assets
Total segment assets $ 2,590,605 $ 1,845,471 $ 1,440,786
Parent company assets 34,360 36,920 15,333
------------ ------------ -----------
Consolidated total assets $ 2,624,965 $ 1,882,391 $ 1,456,119
============ ============ ===========
</TABLE>
A-65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
As of and for Year Ended
December 31,
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income and other income
Total segment net interest income and other income $ 124,944 $ 91,412 $ 75,609
Parent company net interest inocme and other income (3,893) (1,357) 309
---------------------------------------------------
Consolidated net interest income and other income $ 121,051 $ 90,055 $ 75,918
===================================================
Net income before taxes
Total segment net income before income taxes $ 92,066 $ 56,923 $ 39,840
Parent company net income before income taxes (32,174) (17,620) (9,486)
---------------------------------------------------
Consolidated net income before income taxes $ 59,892 $ 39,303 $ 30,354
===================================================
Total assets
Total segment assets $2,590,605 $1,845,471 $1,440,786
Parent company segment assets 34,360 36,920 15,333
---------------------------------------------------
Consolidated total assets $2,624,965 $1,882,391 $1,456,119
===================================================
</TABLE>
NOTE 23--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents the summary results for the stated eight quarters
<TABLE>
<CAPTION>
December 31, September 30, June 30, March 31,
-------------------- --------------------- ---------------- ---------------------
(Dollars in Thousands except per shares data)(1) 1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 51,259 $ 36,659 $ 45,536 $ 35,522 $ 41,644 $ 32,787 $ 36,911 $ 30,504
Net Interest income 30,105 21,278 26,969 20,661 24,651 19,418 22,107 18,457
Provision for loan loss 6,013 1,986 3,578 1,912 1,697 1,437 981 1,046
Other income 21,069 3,490 4,433 2,630 3,391 2,642 2,634 2,369
Other expenses 28,569 14,195 15,394 13,451 15,199 14,182 14,157 12,711
Income before taxes 16,592 8,587 12,430 7,928 11,046 6,461 9,923 7,069
Net income 9,524 5,959 7,853 5,342 4,347 4,152 5,987 4,708
Net income per share
Basic $ 0.77 $ 0.51 $ 0.64 $ 0.46 $ 0.36 $ 0.36 $ 0.50 $ 0.41
Diluted $ 0.73 $ 0.47 $ 0.61 $ 0.42 $ 0.34 $ 0.33 $ 0.48 $ 0.38
* Quarterly amounts have been restated on a historical basis to reflect the
mergers with BA Bancshares and Bay Commercial Services on a pooling of
interests basis.
</TABLE>
A-66
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
Greater Bay Bancorp:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 19 present fairly, in all material
respects, the financial position of Greater Bay Bancorp and its subsidiaries
at December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
January 31, 2000
A-67
<PAGE>
EXHIBIT 10.2
EMPLOYEE SUPPLEMENTAL COMPENSATION BENEFITS AGREEMENT
-----------------------------------------------------
This Employee Supplemental Compensation Benefits Agreement (the
"Agreement") is made and entered into effective as of January 1, 1998, by and
between Greater Bay Bancorp, a California corporation (the "Employer"), and
David L. Kalkbrenner, an individual residing in the State of California (the
"Employee").
R E C I T A L S
---------------
WHEREAS, the Employee is an employee of the Employer, and, since July 1,
1987, has become eligible to participate in the Employee Supplemental
Compensation Benefits Plan represented by this Agreement(the "Plan");
WHEREAS, the Employer desires to establish a compensation benefits program
as a fringe benefit for certain officers of the Employer in order to attract and
retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Employee's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Employee with certain benefits, on the terms and conditions set
forth herein, in order to reasonably induce the Employee to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer; and
WHEREAS, the Employee and the Employer wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Employee, or to the Employee's spouse or the Employee's
designated beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Employee in the future, as well as the mutual promises and covenants contained
herein, the Employee and the Employer agree as follows:
A G R E E M E N T
-----------------
1. Terms and Definitions.
1.1 Administrator. The Employer shall be the "Administrator" and, solely
-------------
for the purposes of ERISA, as defined in subparagraph 1.11 below, the
"fiduciary" of this Agreement where a fiduciary is required by ERISA.
-1-
<PAGE>
1.2 Applicable Percentage. The term "Applicable Percentage" shall mean
---------------------
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Employee's commencement of employment with and providing personal services to
the Employer or, if later, the date on which the Employee became eligible to
participate in the Plan represented by this Agreement, and ending on the date
payments are to first begin under the terms of this Agreement. Notwithstanding
the foregoing or the percentages set forth on Schedule "A", but subject to all
other terms and conditions set forth herein, the "Applicable Percentage" shall
be:
(a) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
termination of the Employee's employment by the Employer if such termination is
in connection with a "Change in Control" as defined in subparagraph 1.4 below. A
termination shall be deemed to be in connection with a Change in Control if,
within two (2) years following the occurrence of a Change in Control: (i) the
Employee's employment with the Employer is terminated by the Employer other than
a Termination for Cause; or (ii) by reason of the Employer's actions any adverse
and material change occurs in the scope of the Employee's position,
responsibilities, duties, salary, benefits or location of employment; or (iii)
the Employer causes an event to occur which reasonably constitutes or results in
a demotion, a significant diminution of responsibilities or authority, or a
constructive termination (by forcing a resignation or otherwise) of the
Employee's employment;
(b) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
occurrence of (i) the Employee's death prior to the termination of the
Employee's employment by the Employer, or (ii) the Employee's Disability (as
defined in subparagraph 1.6 below) other than a Disability that occurs after the
termination of the Employee's employment by the Employer; and
(c) notwithstanding subclauses (a) and (b) of this subparagraph
1.2, zero percent (0%) in the event the Employee takes any intentional action
which prevents the Employer from collecting the proceeds of any life insurance
policy which the Employer may happen to own at the time of the Employee's death
and of which the Employer is the designated beneficiary (the "Employer Cost
Recovery Policy"). Furthermore, notwithstanding the foregoing, or anything
contained in this Agreement to the contrary, in the event the Employee takes any
intentional action which prevents the Employer from collecting the proceeds of
any Employer Cost Recovery Policy, then: (1) the Employee, the Employee's
estate, designated beneficiary or Surviving Spouse shall no longer be entitled
to receive any of the amounts payable under the terms of this Agreement, and (2)
the Employer shall have the right to recover from Employee's estate and/or
Surviving Spouse all of the amounts paid to the Employee's estate or Surviving
Spouse, as the case may be (with respect to amounts paid prior to the Employee's
death or paid to the Employee's estate or Surviving Spouse) or from the
Employee's designated beneficiary (with respect to amounts paid to the
designated beneficiary) pursuant to the terms of this Agreement prior to and
after Employee's death.
-2-
<PAGE>
1.3 Beneficiary. The term "beneficiary" or "designated beneficiary"
-----------
shall mean the person or persons whom the Employee shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "E," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof and is
completed and signed by the Employee and received by the Administrator prior to
the Employee's death.
1.4 Change in Control. The term "Change in Control" shall mean the first
-----------------
to occur of any of the following events with respect to the Employer (with the
term "Employer" being defined for purposes of determining whether a "Change in
Control" has occurred to include any parent bank holding company which owns 100%
of the Employer's outstanding voting capital stock):
(a) Any "person" (as such term is used in sections 13 and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
becomes the beneficial owner (as that term is used in section 13(d) of the
Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of
the Employer's capital stock entitled to vote in the election of directors,
other than a group of two or more persons not (i) acting in concert for the
purpose of acquiring, holding or disposing of such stock or (ii) otherwise
required to file any form or report with any governmental agency or regulatory
authority having jurisdiction over the Employer which requires the reporting of
any change in control;
(b) During any period of not more than two (2) consecutive years,
not including any period prior to the adoption of the Plan represented by this
Agreement, individuals who, at the beginning of such period, constitute the
Board of Directors of the Employer, and any new director (other than a director
designated by a person who has entered into an agreement with the Employer to
effect a transaction described in clause (a), (c), (d) or (e) of this
subparagraph 1.4) whose appointment to the Board of Directors or nomination for
election to the Board of Directors was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office, either were
directors at the beginning of such period or whose appointment or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof;
(c) The effective date of any consolidation or merger of the
Employer (after all requisite shareholder, applicable regulatory and other
approvals and consents have been obtained), other than a consolidation or merger
of the Employer in which the holders of the voting capital stock of the Employer
immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the voting capital stock of the surviving entity immediately after the
consolidation or merger;
(d) The shareholders of the Employer approve any plan or proposal
for the liquidation or dissolution of the Employer; or
-3-
<PAGE>
(e) The shareholders of the Employer approve the sale or transfer
of substantially all of the Employer's assets to parties that are not within a
"controlled group of corporations" (as that term is defined in section 1563 of
the Code) in which the Employer is a member.
1.5 The Code. The "Code" shall mean the Internal Revenue Code of 1986, as
--------
amended (the "Code").
1.6 Disability/Disabled. The term "Disability" or "Disabled" shall have the
-------------------
same meaning given such terms in any policy of disability insurance maintained
by the Employer for the benefit of employees including the Employee. In the
absence of such a policy which extends coverage to the Employee in the event of
disability, the terms shall mean bodily injury or disease (mental or physical)
which wholly and continuously prevents the performance of the Employee's duties
to the Employer for at least ninety (90) days.
1.7 Early Retirement Date. The term "Early Retirement Date" shall mean the
---------------------
Retirement, as defined below, of the Employee on a date which occurs prior to
the Employee attaining sixty-two (62) years of age, as defined below, but after
the Employee has attained fifty-nine and one-half (59.5) years of age.
1.8 Effective Date. The term "Effective Date" shall mean the date first
--------------
written above.
1.9 Employee Benefits. Except as otherwise stated in this Agreement, the
-----------------
term "Employee Benefits" shall mean the Index Employee Benefits, if any,
described in and determined in accordance with Schedule "B" and the supplemental
benefits described in and determined in accordance with Schedule "C", and
reduced or adjusted to the extent: (i) required under the other provisions of
this Agreement; (ii) required by reason of the lawful order of any regulatory
agency or body having jurisdiction over the Employer; or (iii) required in order
for the Employer to properly comply with any and all applicable state and
federal laws, including, but not limited to, income, employment and disability
income tax laws (e.g., FICA, FUTA, SDI).
1.10 Employer. Except as otherwise set forth in this Agreement, the term
--------
"Employer" shall mean Greater Bay Bancorp; provided, however, that for purposes
of subparagraph 1.15 (definition of Termination for Cause) and Paragraph 5
(including its subparagraphs, regarding termination of employment), the term
"Employer" shall mean Greater Bay Bancorp and its subsidiaries and affiliated
entities.
1.11 ERISA. The term "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
1.12 Plan Year. The term "Plan Year" shall mean the Employer's fiscal year.
---------
-4-
<PAGE>
1.13 Retirement. The term "Retirement" or "Retires" shall refer to the date
----------
which the Employee acknowledges in writing to the Employer to be the last day
the Employee will provide any significant personal services, whether as an
employee or independent consultant or contractor, to the Employer or to, for, or
on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal services"
shall mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period for compensation excluding
services, if any, rendered by the Employee after Retirement pursuant to the
terms of a consulting agreement described in Schedule "C", if any.
1.14 Surviving Spouse. The term "Surviving Spouse" shall mean the person,
----------------
if any, who shall be legally married to the Employee on the date of the
Employee's death.
1.15 Termination for Cause. The term "Termination for Cause" shall mean
---------------------
termination of the employment of the Employee by reason of any of the following:
(a) The Employee's deliberate violation of (i) any state or federal banking
or securities laws, or of the Bylaws, rules, policies or resolutions of the
Employer, or (ii) of the rules or regulations of the California Commissioner of
Financial Institutions, the Federal Deposit Insurance Corporation, the Federal
Reserve Board of Governors, the Office of the Comptroller of the Currency or any
other regulatory agency or governmental authority having jurisdiction over the
Employer, which has a material adverse effect upon the Employer; or
(b) The Employee's conviction of any felony which has a material adverse
effect upon Employer.
2. Scope, Purpose and Effect.
-------------------------
2.1 Contract of Employment. Although this Agreement is intended to
----------------------
provide the Employee with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Employee and the Employer nor shall any provision of this
Agreement restrict or expand the right of the Employer to terminate the
Employee's employment. This Agreement shall have no impact or effect upon any
separate written Employment Agreement which the Employee may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart from, and shall have no effect upon, or be
affected by, the terms and provisions of said Employment Agreement.
2.2 Fringe Benefit. The benefits provided by this Agreement are granted
--------------
by the Employer as a fringe benefit to the Employee and are not a part of any
salary reduction plan or any arrangement deferring a bonus or a salary increase.
The Employee has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
-5-
<PAGE>
3. Payments Upon Early Retirement or Retirement and After Retirement.
-----------------------------------------------------------------
3.1 Payments Upon Early Retirement. The Employee shall have the right to
------------------------------
Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Employee elects to Retire on a date
which constitutes an Early Retirement Date, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee Benefits specified in Schedule
"B", payable in substantially equal monthly installments on the first day of
each month, beginning with the month following the month in which the Early
Retirement Date occurs (or on such later date as may be mutually agreed upon by
the Employee and the Employer in advance of such Early Retirement Date) (i) for
the period designated in Schedule "F", in the case of the balance in the Benefit
Account and (ii) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B".
EXAMPLE
Payments Upon Early Retirement
<TABLE>
<CAPTION>
Assumptions:
- -----------
<S> <C>
Age at Early Retirement 60
Normal Retirement Age 62
Projected Benefit Account Value at Age 62 $100,000
Actual Benefit Account Value at Age 60 $20,000
Distribution Period Elected for Benefit Account (Schedule F) 10 yrs.
Projected Index Benefit at Age 62 $50,000
Projected Index Benefit at Age 60 $25,000
Applicable Percentage at Age 60 75%
First Year Benefit Calculation: Age 60
1) Benefit Account [($20,000 /10) x .75] $ 1,500
2) Index Benefit ($25,000 x .75) $18,750
-------
Total First Year Benefit $20,250
=======
</TABLE>
3.2 Payments Upon Retirement. If the Employee shall remain in the
------------------------
continuous employment of the Employer until attaining sixty-two (62) years of
age, the Employee shall be entitled to be paid the Applicable Percentage of the
Employee Benefits specified in Schedule "B", payable in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Employee Retires (or on such later date as may
be mutually agreed upon by the Employee and the Employer in advance of said
Retirement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
-6-
<PAGE>
3.3 Payments in the Event of Death After Retirement. The Employer agrees
-----------------------------------------------
that if the Employee Retires, but shall die before receiving all of the Employee
Benefits, the Employer will make such payments to which the Employee may be
entitled, to the Employee's designated beneficiary in lump sum. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Employee under the terms of this Agreement shall be paid to the Employee's
Surviving Spouse. If the Employee leaves no Surviving Spouse, the remaining
amounts due to the Employee under the terms of this Agreement shall be paid to
the duly qualified personal representative, executor or administrator of the
Employee's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
--------------------------------------------------------------------
4.1 Payments in the Event of Death Prior to Retirement. If the Employee
--------------------------------------------------
dies while actively employed by the Employer at any time after the Effective
Date of this Agreement, but prior to Retirement, the Employer agrees to pay the
Employee Benefits to which the Employee is then entitled to the Employee's
designated beneficiary in lump sum. If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Employee under the terms of this
Agreement shall be paid to the Employee's Surviving Spouse. If the Employee
leaves no Surviving Spouse, the remaining amounts due to the Employee under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Employee's estate.
4.2 Payments in the Event of Disability Prior to Retirement. In the
-------------------------------------------------------
event the Employee becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Employee shall be entitled to be paid the
Applicable Percentage of the Employee Benefits specified in Schedule "B",
payable in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Employee
becomes Disabled (or on such later date as may be mutually agreed upon by the
Employee and the Employer not less than fifteen (15) days prior to such
commencement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
5. Payments in the Event Employment Is Terminated Prior to Retirement.
------------------------------------------------------------------
As indicated in subparagraph 2.1 above, the Employer reserves the right to
terminate the Employee's employment, with or without cause but subject to any
written employment agreement which may then exist, at any time prior to the
Employee's Retirement. In the event that the employment of the Employee shall be
terminated, other than by reason of death, Disability or Retirement, prior to
the Employee's attaining sixty-two (62) years of age, then this Agreement shall
terminate on the date of such termination of employment; provided, however, that
the Employee shall be entitled to the following benefits as may be applicable
depending upon the circumstances surrounding the Employee's termination:
5.1 Termination Without Cause. If the Employee's employment is
-------------------------
terminated by the Employer without cause, and such termination is not subject to
the provisions
-7-
<PAGE>
of subparagraph 5.4 below, the Employee shall be entitled to be paid the
Applicable Percentage of the Employee Benefits specified in Schedule "B",
payable in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Employee
attains sixty-two (62) years of age (or on such later date as may be mutually
agreed upon by the Employee and the Employer not less than fifteen (15) days
prior to such commencement date) (i) for the period designated in Schedule "F",
in the case of the balance in the Benefit Account and (ii) until the Employee's
death, in the case of the Index Benefit defined in Schedule "B".
5.2 Voluntary Termination by the Employee. If the Employee's employment
-------------------------------------
is terminated by voluntary resignation, and such resignation is not subject to
the provisions of subparagraph 5.4 below, the Employee shall be entitled to be
paid the Employee Benefits specified in Schedule "B", payable in substantially
equal monthly installments on the first day of each month, beginning with the
month following the month in which the Employee attains sixty-two (62) years of
age (or on such later date as may be mutually agreed upon by the Employee and
the Employer not less than fifteen (15) days prior to such commencement date)
(i) for the period designated in Schedule "F", in the case of the balance in the
Benefit Account and (ii) until the Employee's death, in the case of the Index
Benefit defined in Schedule "B.
5.3 Termination for Cause. If the Employee suffers a "Termination for
---------------------
Cause", as defined in subparagraph 1.15 of this Agreement, the Employee shall
forfeit any and all rights and benefits the Employee may have under the terms of
this Agreement and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Employee by the Employer pursuant to the terms
of this Agreement.
5.4 Termination by the Employer on Account of or After a Change in
--------------------------------------------------------------
Control. In the event the Employee's employment with the Employer is terminated
- -------
by the Employer "in connection with a Change in Control" as described in
subparagraph 1.2(a) and as defined in subparagraph 1.4 above, the Employee shall
be entitled to be paid the Applicable Percentage of the Employee Benefits
specified in Schedule "B", in substantially equal monthly installments on the
first day of each month, beginning with the month following the month in which
the Employee attains fifty-nine and one-half (59.5) years of age or any month
thereafter, as requested in writing by the Employee and delivered to the
Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Employee does not
request a commencement date as specified, such installments shall be paid on the
first day of each month, beginning with the month following the month in which
the Employee attains sixty-two (62) years of age. The installments shall be
payable (i) for the period designated in Schedule "F" in the case of the balance
in the Benefit Account and (ii) until the Employee's death in the case of the
Index Benefit defined in Schedule "B".
5.5 Payments in the Event of Death Following Termination. If the
----------------------------------------------------
Employee shall die prior to receiving all of the applicable benefits described
in this Paragraph 5 to which the Employee is entitled, then the Employer will
make such payments to the Employee's designated beneficiary. If a valid
Beneficiary Designation is not in effect, then the
-8-
<PAGE>
remaining amounts due to the Employee shall be paid to the Employee's Surviving
Spouse. If the Employee leaves no Surviving Spouse, the remaining amounts due to
the Employee shall be paid to the duly qualified personal representative,
executor or administrator of the Employee's estate.
6. Section 280G Benefits Adjustment. If all or any portion of the
--------------------------------
amounts payable to the Employee under this Agreement, either alone or together
with other payments which the Employee has the right to receive from the
Employer, constitute "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are
subject to the excise tax imposed by Section 4999 of the Code (or similar tax
and/or assessment), the Employer (and its successor) shall increase the amounts
payable under this Agreement to the extent necessary to afford the Employee
substantially the same economic benefit under this Agreement as the Employee
would have received had no such excise tax been imposed on the payments due the
Employee under this Agreement. The determination of the amount of any such
excise taxes shall be made initially by the independent accounting firm employed
by the Employer immediately prior to the occurrence of the event constituting a
Change in Control.
If, at a later date, it is determined (pursuant to final regulations or
published rulings of the Internal Revenue Service, final judgment of a court of
competent jurisdiction, or otherwise) that the amount of excise taxes payable to
the Employee is greater than the amount initially so determined, then the
Employer (or its successor) shall pay to the Executive an amount equal to the
sum of (i) such additional excise taxes, and (ii) any interest, fines and
penalties resulting from such underpayment, plus (iii) an amount necessary to
reimburse the Employee substantially for any income, excise or other taxes
payable by the Employee with respect to the amounts specified in (i) and (ii)
above, and the reimbursement provided by this clause (iii).
7. Right To Determine Funding Methods. The Employer reserves the right to
----------------------------------
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Employee, the Employee's spouse or the Employee's beneficiaries
under the terms of this Agreement. In the event that the Employer elects to fund
this Agreement, in whole or in part, through the use of life insurance or
annuities, or both, the Employer shall determine the ownership and beneficial
interests of any such policy of life insurance or annuity. The Employer further
reserves the right, in its sole and absolute discretion, to terminate any such
policy, and any other device used to fund its obligations under this Agreement,
at any time, in whole or in part. Consistent with Paragraph 9 below, neither the
Employee, the Employee's spouse nor the Employee's beneficiaries shall have any
right, title or interest in or to any funding source or amount utilized by the
Employer pursuant to this Agreement, and any such funding source or amount shall
not constitute security for the performance of the Employer's obligations
pursuant to this Agreement. In connection with the foregoing, the Employee
agrees to execute such documents and undergo such medical examinations or tests
which the Employer may request and which may be reasonably necessary to
facilitate any funding for this Agreement including, without limitation,
-9-
<PAGE>
the Employer's acquisition of any policy of insurance or annuity. Furthermore, a
refusal by the Employee to consent to, participate in and undergo any such
medical examinations or tests shall result in the immediate termination of this
Agreement and the immediate forfeiture by the Employee, the Employee's spouse
and the Employee's beneficiaries of any and all rights to payment hereunder.
8. Claims Procedure. The Employer shall, but only to the extent necessary
----------------
to comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, the Employer shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Employer denying a claim by the Employee, the Employee's spouse, or the
Employee's beneficiary for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Employee, the Employee's spouse or the Employee's beneficiary, as the case may
be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Employer shall provide the Employee, the Employee's
spouse or the Employee's beneficiary with a reasonable opportunity for a full
and fair review of the decision denying such claim.
9. Status as an Unsecured General Creditor. Notwithstanding anything
---------------------------------------
contained herein to the contrary: (i) neither the Employee, the Employee's
spouse or the Employee's designated beneficiaries shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Employer as a result of this Agreement; (ii) none of the Employer's
assets shall be held in or under any trust for the benefit of the Employee, the
Employee's spouse or the Employee's designated beneficiaries or held in any way
as security for the fulfillment of the obligations of the Employer under this
Agreement; (iii) all of the Employer's assets shall be and remain the general
unpledged and unrestricted assets of the Employer; (iv) the Employer's
obligation under this Agreement shall be that of an unfunded and unsecured
promise by the Employer to pay money in the future; and (v) the Employee, the
Employee's spouse and the Employee's designated beneficiaries shall be unsecured
general creditors with respect to any benefits which may be payable under the
terms of this Agreement.
Notwithstanding subparagraphs (i) through (v) above, the Employer and the
Employee acknowledge and agree that, in the event of a Change in Control and at
the written request of the Employee, the Employer shall establish, not later
than the effective date of the Change in Control, a Rabbi Trust or multiple
Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions as the
Employer in its sole discretion deems appropriate and in compliance with
applicable provisions of the Code in order to permit the Employer to make
contributions and/or transfer assets to the Trust or Trusts to discharge its
obligations pursuant to this Agreement. The principal of the Trust or Trusts and
any earnings thereon shall be held separate and apart from other funds of the
Employer to be used exclusively for discharge of the Employer's obligations
pursuant to this Agreement and shall continue to be subject to the claims of the
Employer's general creditors until paid to the Employee or its beneficiaries in
such manner and at such times as specified in this Agreement.
-10-
<PAGE>
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the
----------------------------------------
other provisions of this Agreement, the Board of Directors of the Employer may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Employee (or the Employee's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Employer's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors and offered to the Employee [or Employee's spouse
or designated beneficiaries] on a "take it or leave it basis").
11. Miscellaneous.
-------------
11.1 Opportunity To Consult With Independent Advisors. The Employee
------------------------------------------------
acknowledges that the Employee has been afforded the opportunity to consult with
independent advisors of his or her choosing including, without limitation,
accountants or tax advisors and counsel regarding both the benefits granted to
the Employee under the terms of this Agreement and the (i) terms and conditions
which may affect the Employee's right to these benefits and (ii) personal tax
effects of such benefits including, without limitation, the effects of any
federal or state taxes, Section 280G of the Code, and any other taxes, costs,
expenses or liabilities whatsoever related to such benefits, which in any of the
foregoing instances the Employee acknowledges and agrees shall be the sole
responsibility of the Employee notwithstanding any other term or provision of
this Agreement. The Employee further acknowledges and agrees that the Employer
shall have no liability whatsoever related to any such personal tax effects or
other personal costs, expenses, or liabilities applicable to the Employee and
further specifically waives any right for the Employee and his or her heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Employer related to the matters described
above in this subparagraph 11.1. The Employee further acknowledges and agrees
that the Employee has read, understands and consents to all of the terms and
conditions of this Agreement, and that the Employee enters into this Agreement
with a full understanding of its terms and conditions.
11.2 Arbitration of Disputes. All claims, disputes and other matters in
-----------------------
question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Employer in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
in San Francisco, California. In the event JAMS is unable or unwilling to
conduct the arbitration provided for under the terms of this Paragraph, or has
discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), in San Francisco, California, shall conduct the binding
arbitration referred to in this Paragraph. Notice of the demand for arbitration
shall be filed in writing with the other party to this Agreement and with JAMS
(or AAA, if necessary).
-11-
<PAGE>
In no event shall the demand for arbitration be made after the date when
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations. The arbitration shall be subject to such rules of procedure used or
established by JAMS, or if there are none, the rules of procedure used or
established by AAA. Any award rendered by JAMS or AAA shall be final and binding
upon the parties, and as applicable, their respective heirs, beneficiaries,
legal representatives, agents, successors and assigns, and may be entered in any
court having jurisdiction thereof. The obligation of the parties to arbitrate
pursuant to this clause shall be specifically enforceable in accordance with,
and shall be conducted consistently with, the provisions of Title 9 of Part 3 of
the California Code of Civil Procedure. Any arbitration hereunder shall be
conducted in San Jose, California, unless otherwise agreed to by the parties.
11.3 Attorneys' Fees. In the event of any arbitration or litigation
---------------
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by the
arbitrator(s) or court, as the case may be, to have most nearly prevailed, even
if such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
11.4 Notice. Any notice required or permitted of either the Employee or
------
the Employer under this Agreement shall be deemed to have been duly given, if by
personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Greater Bay Bancorp
2860 W. Bayshore Road
Palo Alto, California 94303
Attn: President and Chief Executive Officer
If to the Employee: David L. Kalkbrenner
[omitted]
11.5 Assignment. Neither the Employee, the Employee's spouse, nor any
----------
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate,
-12-
<PAGE>
hypothecate, modify or otherwise encumber any part or all of the amounts payable
hereunder, nor, prior to payment in accordance with the terms of this Agreement,
shall any portion of such amounts be: (i) subject to seizure by any creditor of
any such beneficiary, by a proceeding at law or in equity, for the payment of
any debts, judgments, alimony or separate maintenance obligations which may be
owed by the Employee, the Employee's spouse, or any designated beneficiary; or
(ii) transferable by operation of law in the event of bankruptcy, insolvency or
otherwise. Any such attempted assignment or transfer shall be void and shall
terminate this Agreement, and the Employer shall thereupon have no further
liability hereunder.
11.6 Binding Effect/Merger or Reorganization. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of the Employee and the Employer and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used in this Agreement
shall be deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7 Non-waiver. The failure of either party to enforce at any time or
----------
for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8 Partial Invalidity. If any term, provision, covenant, or condition
------------------
of this Agreement is determined by an arbitrator or a court, as the case may be,
to be invalid, void, or unenforceable, such determination shall not render any
other term, provision, covenant or condition invalid, void or unenforceable, and
the Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
11.9 Entire Agreement. This Agreement, including the schedules and
----------------
exhibits attached hereto and incorporated herein by this reference, contains all
of the covenants and agreement, and supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the subject
matter of this Agreement. Each party to this Agreement acknowledges that no
other representations, inducements, promises, or agreements, oral or otherwise,
have been made by any party, or anyone acting on behalf of any party, which are
not set forth herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding on either party.
11.10 Modifications. Any modification of this Agreement shall be
-------------
effective only if it is in writing and signed by each party or such party's
authorized representative.
-13-
<PAGE>
11.11 Paragraph Headings. The paragraph headings used in this Agreement
------------------
are included solely for the convenience of the parties and shall not affect or
be used in connection with the interpretation of this Agreement.
11.12 No Strict Construction. The language used in this Agreement shall
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
11.13 Governing Law. The laws of the State of California, other than
-------------
those laws denominated choice of law rules, and, where applicable, the rules and
regulations of the California Commissioner of Financial Institutions, the
Federal Deposit Insurance Corporation, the Federal Reserve Board of Governors
and the Office of the Comptroller of the Currency, shall govern the validity,
interpretation, construction and effect of this Agreement.
11.14 Waiver of Prior Plan Benefit. To the extent that the Employee is a
----------------------------
participant in any other supplemental benefit plan provided by the Employer
which affords the Employee benefits in the event of the Employee's retirement or
death or a change in control of the Employer, it is an express condition
precedent to the effectiveness of this Agreement that the Employee execute and
deliver the Waiver of Prior Plan Benefit attached as Schedule "D" to this
Agreement.
IN WITNESS WHEREOF, the Employer and the Employee have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER THE EMPLOYEE
GREATER BAY BANCORP,
a California corporation
By: /s/ Duncan L. Matteson By: /s/ David L. Kalkbrenner
---------------------- ------------------------
Duncan L. Matteson DAVID L. KALKBRENNER
Chairman of the Board
-14-
<PAGE>
SCHEDULE A
----------
Applicable
Calendar Year Percentage
Inception to 12/31/97 100%
Per Year Vesting Thereafter 100%
-15-
<PAGE>
SCHEDULE B
----------
INDEX EMPLOYEE BENEFITS
-----------------------
1. Index Employee Benefits Determination. The Index Employee Benefits
-------------------------------------
consist of (i) accruals to the Employee's Benefit Account (as described in
subparagraph (a) below) during the Employee's employment by the Employer and
(ii) the Index Benefit (as described in subparagraph (b) below) after the
Employee's employment by the Employer terminates. The Index Employee Benefits
shall be determined based upon the following:
a. Benefit Account: A Benefit Account shall be established as a
---------------
liability reserve account on the books of the Employer for the benefit of the
Employee. Prior to the date on which the Employee becomes eligible to receive
payments under the Plan, such Benefit Account shall be increased (or decreased)
each Plan Year by an amount equal to the annual earnings (or loss) for that Plan
Year determined by the Index (described in subparagraph c below), less the
Opportunity Cost (described in subparagraph d below) for that Plan Year.
b. Index Benefit: After the date on which the Employee becomes eligible
-------------
to receive payments under the Plan, the Index Benefit for the Employee for any
Plan Year shall be determined by subtracting the Opportunity Cost for that Plan
Year from the annual earnings (if any) for that Plan year determined by the
Index.
c. Index: The Index for any Plan Year shall be the aggregate annual
-----
after-tax income from the life insurance contracts described hereinafter as
defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such
insurance contracts were purchased on the Effective Date.
<TABLE>
<S> <C>
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $892,375
-------------
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $970,000
-------------
Insurance Company: [omitted]
------------------
Policy Number: [omitted]
--------------
Premiums Paid: $970,000
--------------
</TABLE>
-16-
<PAGE>
If such contracts of life insurance are actually purchased by the Employer, then
the actual policies as of the dates purchased shall be used in calculations to
determine the Index and Opportunity Cost. If such contracts of life insurance
are not purchased or are subsequently surrendered or lapsed, then the Employer
shall receive and use annual policy illustrations that assume the above
described policies were purchased from the above named insurance company(ies) on
the Effective Date to calculate the amount of the Index and Opportunity Cost.
d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be
----------------
calculated by multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount of any Index
Benefits (described at subparagraph b above), and (iii) the amount of all
previous years after-tax Opportunity Costs; by (b) the average annualized
after-tax cost of funds calculated using a one-year U.S. Treasury Bill as
published in the Wall Street Journal. The applicable tax rate used to calculate
the Opportunity Cost shall be the Employer's marginal tax rate until the
Employee's Retirement, or other termination of service (including a Change in
Control). Thereafter, the Opportunity Cost shall be calculated with the
assumption of a marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Employer is higher or
lower.
2. Employee Benefits Payments. The Employee shall be entitled to payment of
--------------------------
the Index Employee Benefits on the terms as specified in the Agreement.
EXAMPLE
INDEX EMPLOYEE BENEFITS
Assume Initial Insurance = $1,000,000
<TABLE>
<CAPTION>
[n] [A] [B] [C] Benefit
End of Year Cash Surrender Value of Life Index Opportunity Cost Account
----------- ----------------------------- ----- ---------------- [Cumulative]
Insurance Policy [Annual Policy [After-Tax One Year U.S. B-C
---------------- Income] Treasury Yield]
An-An-1
<S> <C> <C> <C> <C>
0 $1, 000,000 -- -- --
1 $1,050,000 $50,000 $(30,000) $20,000
2 $1,102,500 $52,500 $(31,500) $41,000
3 $1,157,625 $55,125 $(33,075) $63,050
</TABLE>
-17-
<PAGE>
SCHEDULE C
----------
SUPPLEMENTAL BENEFITS
---------------------
Provided that the Employee has become entitled to receive payment of the
Employee Benefits described in Schedule "B" as provided in the Agreement
(whether or not the Employee has elected to defer receipt of any such payments,
as provided in the Agreement), the Employee shall be entitled to receive the
following supplemental benefits (the "Supplemental Benefits"):
1. Consulting Agreement Payments. The Employee shall receive the Applicable
Percentage of the sum of $250,000 per annum, payable in substantially equal
monthly installments commencing on the first day of the calendar month
immediately following the month in which the Employee attains age sixty-two (62)
and continuing through and including the month in which the Employee attains age
sixty-five (65). In consideration for such payments, the Employee shall render
such consulting services and advice to the Employer as the Employer may
reasonably require, such commitment not to require more than forty (40) hours of
the Employee's time per month.
2. Defined Benefit Payments. The Employee shall receive the Applicable
Percentage of the sum indicated in column (a) below, per annum, payable in
substantially equal monthly installments commencing on the first day of the
calendar month immediately following the month in which the Employee attains the
age indicated below in column (b) and continuing through and including the month
in which the Employee attains the age indicated below in column (c).
<TABLE>
<S> <C> <C>
(a) (b) (c)
$250,000 65 67
$150,0000 67 69
$125,000 69 73
$90,000 73 81
$50,000 81 85
</TABLE>
If the Employee shall die before receiving all of the Supplemental Benefits
described in this Schedule "C", the Employer will make such payments to which
the Employee may be entitled, to the Employee's designated beneficiary in lump
sum. If a valid Beneficiary Designation is not in effect, then the remaining
amounts due to the Employee under the terms of
-18-
<PAGE>
this Schedule "C" shall be paid to the Employee's Surviving Spouse. If the
Employee leaves no Surviving Spouse, the remaining amounts due to the Employee
under the terms of this Schedule "C" shall be paid to the duly qualified
personal representative, executor or administrator of the Employee's estate.
In the event that the Employee has not become entitled to receive payment
of the Employee Benefits described in Schedule "B" on or before the date on
which the Supplemental Benefits described in this Schedule "C" would otherwise
commence (other than as a result of an agreement between the Employer and the
Employee to defer receipt of such payments), then the Employee shall forfeit
each monthly installment of payments otherwise payable under this Schedule "C"
for each month until the Employee becomes entitled to receive payment of the
Employee Benefits specified in Schedule "B".
Notwithstanding anything herein or in the Agreement to the contrary, the
Supplemental Benefits set forth in this Schedule "C" shall terminate
automatically upon the forfeiture or other termination of the Employee's right
to receive the Employee Benefits specified in Schedule "B", as provided in this
Agreement.
-19-
<PAGE>
SCHEDULE D
----------
WAIVER OF PRIOR PLAN BENEFITS
-----------------------------
In consideration for the Employee Benefits made available to the Employee
by this Employee Supplemental Compensation Benefits Agreement (the "Agreement"),
the Employee acknowledges and agrees as follows:
(a) The Employee is a party to that certain Greater Bay Bancorp
Executive Salary Continuation Plan made with the Employer or its predecessor
dated April 26, 1995 (the "Prior Plan Agreement");
(b) This Agreement and the Employee Benefits hereunder are provided as a
substitute for the Prior Plan Agreement and the benefits provided thereunder;
(c) The Prior Plan Agreement and the benefits thereunder are hereby
terminated effective as of the date of this Agreement;
(d) The Employee hereby waives and relinquishes for himself or herself,
and his or her heirs, beneficiaries, legal representatives, agents, successors
and assigns, any and all right, entitlement and interest that the Employee has
or may have pursuant to the Prior Plan Agreement and the benefits thereunder;
(e) The Employee accepts the Employee Benefits afforded by this
Agreement in full and complete substitution for the benefits otherwise provided
by the Prior Plan Agreement; and
(f) Without limiting the scope and effect of subparagraph 11.1 of the
Agreement, the Employee (i) has had an opportunity to consult with advisors of
the Employee's own choice in determining to enter into this Agreement and this
Waiver, (ii) understands that the effect of this Waiver is to terminate, waive
and relinquish forever all rights, entitlements and interests that the Employee
has or may have under the Prior Plan Agreement and the benefits thereunder as a
condition to receiving the Employee Benefits under this Agreement; and (iii) the
Employee is entering into this Agreement and this Waiver voluntarily and with
full appreciation of the effect of doing so.
Dated: , 1998
---------------------------- ---------------------------------
David L. Kalkbrenner
I consent to and agree to be bound by the foregoing Waiver:
---------------------------------
Spouse of David L. Kalkbrenner
-20-
<PAGE>
SCHEDULE E
----------
BENEFICIARY DESIGNATION
-----------------------
To the Administrator of the Greater Bay Bancorp Employee Supplemental
Compensation Benefits Agreement:
Pursuant to the Provisions of my Employee Supplemental Compensation
Benefits Agreement with Greater Bay Bancorp, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
Primary Beneficiary:
- -------------------
- --------------------- --------------------- --------------------------
Name Address Relationship
Secondary (Contingent) Beneficiary:
- ----------------------------------
- --------------------- --------------------- --------------------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by
reason of my death to the Primary Beneficiary, if he or she survives me, and if
no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and
if no named beneficiary survives me, then the Administrator shall pay all
amounts in accordance with the terms of my Employee Supplemental Compensation
Benefits Agreement. In the event that a named beneficiary survives me and dies
prior to receiving the entire benefit payable under said Agreement, then and in
that event, the remaining unpaid benefit payable according to the terms of my
Employee Supplemental Compensation Benefits Agreement shall be payable to the
personal representatives of the estate of said beneficiary who survived me but
died prior to receiving the total benefit provided by my Employee Supplemental
Compensation Benefits Agreement.
Dated: , 1998
---------------------------- ---------------------------------
David L. Kalkbrenner
-21-
<PAGE>
CONSENT OF THE EMPLOYEE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
- ------------------------------------
I, ___________________ , being the spouse of David L. Kalkbrenner, after
being afforded the opportunity to consult with independent counsel of my
choosing, do hereby acknowledge that I have read, agree and consent to the
foregoing Beneficiary Designation which relates to the Employee Supplemental
Compensation Benefits Agreement entered into by my spouse effective as of
January 1, 1998. I understand that the above Beneficiary Designation may affect
certain rights which I may have in the benefits provided for under the terms of
the Employee Supplemental Compensation Benefits Agreement and in which I may
have a marital property interest.
Dated: , 1998
----------------------------
- -----------------------------------
(Signature)
- -----------------------------------
(Type/Print Name)
-22-
<PAGE>
SCHEDULE F
----------
DISTRIBUTION ELECTION
---------------------
Pursuant to the Provisions of my Employee Supplemental Compensation Benefits
Agreement with Greater Bay Bancorp, I hereby elect to have any distribution of
the balance in my Benefit Account paid to me in installments as designated
below:
___ sixty (60) monthly installments with the amount of each installment
determined as of each installment date by dividing the entire amount in
my Benefit Account by the number of installments then remaining to be
paid, with the final installment to be the entire remaining balance in
the Benefit Account.
___ one hundred twenty (120) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
___ one hundred eighty (180) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
Dated: , 1998
----------------------------
Signed:
----------------------------------
David L. Kalkbrenner
-23-
<PAGE>
EXHIBIT 10.3
EMPLOYEE SUPPLEMENTAL COMPENSATION BENEFITS AGREEMENT
-----------------------------------------------------
This Employee Supplemental Compensation Benefits Agreement (the
"Agreement") is made and entered into effective as of January 1, 1998, by and
between Mid-Peninsula Bank, a California banking corporation (the "Employer"),
and Susan K. Black, an individual residing in the State of California (the
"Employee").
R E C I T A L S
---------------
WHEREAS, the Employee is an employee of the Employer, and, since September
1, 1987, has become eligible to participate in the Employee Supplemental
Compensation Benefits Plan represented by this Agreement (the "Plan");
WHEREAS, the Employer desires to establish a compensation benefits program
as a fringe benefit for certain officers of the Employer in order to attract and
retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Employee's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Employee with certain benefits, on the terms and conditions set
forth herein, in order to reasonably induce the Employee to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer;
WHEREAS, it is the intention of the parties that the Employer's obligations
under this Agreement shall be that of an unfunded and unsecured promise to
provide the benefits to the Employee set forth hereinafter and except for the
contributions, if any, to a secular trust to be established by the Employee as
grantor, the Employee and the Employee's beneficiaries shall be unsecured
general creditors with respect to any benefits provided under the terms of this
Agreement; and
WHEREAS, the Employee and the Employer wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Employee, or to the Employee's spouse or the Employee's
designated beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Employee in the future, as well as the mutual promises and covenants contained
herein, the Employee and the Employer agree as follows:
<PAGE>
A G R E E M E N T
-----------------
1. Terms and Definitions.
---------------------
1.1. Administrator. The Employer shall be the "Administrator" and,
-------------
solely for the purposes of ERISA, as defined in subparagraph 1.11 below, the
"fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall mean
---------------------
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Employee's commencement of employment with and providing personal services to
the Employer or, if later, the date on which the Employee became eligible to
participate in the Plan represented by this Agreement, and ending on the date
payments are to first begin under the terms of this Agreement. Notwithstanding
the foregoing or the percentages set forth on Schedule "A", but subject to all
other terms and conditions set forth herein, the "Applicable Percentage" shall
be:
(a) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
termination of the Employee's employment by the Employer if such termination is
in connection with a "Change in Control" as defined in subparagraph 1.4 below. A
termination shall be deemed to be in connection with a Change in Control if,
within two (2) years following the occurrence of a Change in Control: (i) the
Employee's employment with the Employer is terminated by the Employer other than
a Termination for Cause; or (ii) by reason of the Employer's actions any adverse
and material change occurs in the scope of the Employee's position,
responsibilities, duties, salary, benefits or location of employment; or (iii)
the Employer causes an event to occur which reasonably constitutes or results in
a demotion, a significant diminution of responsibilities or authority, or a
constructive termination (by forcing a resignation or otherwise) of the
Employee's employment;
(b) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
occurrence of (i) the Employee's death prior to the termination of the
Employee's employment by the Employer, or (ii) the Employee's Disability (as
defined in subparagraph 1.6 below) other than a Disability that occurs after the
termination of the Employee's employment by the Employer; and
(c) notwithstanding subclauses (a) and (b) of this subparagraph
1.2, zero percent (0%) in the event the Employee takes any intentional action
which prevents the Employer from collecting the proceeds of any life insurance
policy which the Employer may happen to own at the time of the Employee's death
and of which the Employer is the designated beneficiary (the "Employer Cost
Recovery Policy"). Furthermore, notwithstanding the foregoing, or anything
contained in this Agreement to the contrary, in the event the Employee takes any
intentional action which prevents the Employer from collecting the proceeds of
any Employer Cost Recovery Policy, then: (1) the Employee, the Employee's
estate, designated beneficiary or Surviving Spouse shall no
-2-
<PAGE>
longer be entitled to receive any of the amounts payable under the terms of this
Agreement, and (2) the Employer shall have the right to recover from Employee's
estate and/or Surviving Spouse all of the amounts paid to the Employee's estate
or Surviving Spouse, as the case may be (with respect to amounts paid prior to
the Employee's death or paid to the Employee's estate or Surviving Spouse) or
from the Employee's designated beneficiary (with respect to amounts paid to the
designated beneficiary) pursuant to the terms of this Agreement prior to and
after Employee's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary"
-----------
shall mean the person or persons whom the Employee shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "E," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof and is
completed and signed by the Employee and received by the Administrator prior to
the Employee's death.
1.4. Change in Control. The term "Change in Control" shall mean the
-----------------
first to occur of any of the following events with respect to the Employer (with
the term "Employer" being defined for purposes of determining whether a "Change
in Control" has occurred to include any parent bank holding company which owns
100% of the Employer's outstanding voting capital stock):
(a) Any "person" (as such term is used in sections 13 and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
becomes the beneficial owner (as that term is used in section 13(d) of the
Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of
the Employer's capital stock entitled to vote in the election of directors,
other than a group of two or more persons not (i) acting in concert for the
purpose of acquiring, holding or disposing of such stock or (ii) otherwise
required to file any form or report with any governmental agency or regulatory
authority having jurisdiction over the Employer which requires the reporting of
any change in control;
(b) During any period of not more than two (2) consecutive years,
not including any period prior to the adoption of the Plan represented by this
Agreement, individuals who, at the beginning of such period, constitute the
Board of Directors of the Employer, and any new director (other than a director
designated by a person who has entered into an agreement with the Employer to
effect a transaction described in clause (a), (c), (d) or (e) of this
subparagraph 1.4) whose appointment to the Board of Directors or nomination for
election to the Board of Directors was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office, either were
directors at the beginning of such period or whose appointment or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof;
-3-
<PAGE>
(c) The effective date of any consolidation or merger of the
Employer (after all requisite shareholder, applicable regulatory and other
approvals and consents have been obtained), other than a consolidation or merger
of the Employer in which the holders of the voting capital stock of the Employer
immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the voting capital stock of the surviving entity immediately after the
consolidation or merger;
(d) The shareholders of the Employer approve any plan or proposal
for the liquidation or dissolution of the Employer; or
(e) The shareholders of the Employer approve the sale or transfer
of substantially all of the Employer's assets to parties that are not within a
"controlled group of corporations" (as that term is defined in section 1563 of
the Code) in which the Employer is a member.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986,
--------
as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have
-------------------
the same meaning given such terms in any policy of disability insurance
maintained by the Employer for the benefit of employees including the Employee.
In the absence of such a policy which extends coverage to the Employee in the
event of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of the
Employee's duties to the Employer for at least ninety (90) days.
1.7. Early Retirement Date. The term "Early Retirement Date" shall mean
---------------------
the Retirement, as defined below, of the Employee on a date which occurs prior
to the Employee attaining sixty-two (62) years of age, as defined below, but
after the Employee has attained fifty-nine and one-half (59.5) years of age.
1.8. Effective Date. The term "Effective Date" shall mean the date first
--------------
written above.
1.9. Employee Benefits. Except as otherwise stated in this Agreement,
-----------------
the term "Employee Benefits" shall mean the Index Employee Benefits, if any,
described in and determined in accordance with Schedule "B" and the supplemental
benefits described in and determined in accordance with Schedule "C", and
reduced or adjusted to the extent: (i) required under the other provisions of
this Agreement; (ii) required by reason of the lawful order of any regulatory
agency or body having jurisdiction over the Employer; or (iii) required in order
for the Employer to properly comply with any and all applicable state and
federal laws, including, but not limited to, income, employment and disability
income tax laws (e.g., FICA, FUTA, SDI).
-4-
<PAGE>
1.10. Employer. Except as otherwise set forth in this Agreement, the
--------
term "Employer" shall mean Mid-Peninsula Bank; provided, however, that for
purposes of subparagraph 1.15 (definition of Termination for Cause) and
Paragraph 5 (including its subparagraphs, regarding termination of employment),
the term "Employer" shall mean Mid-Peninsula Bank and its subsidiaries and
affiliated entities.
1.11. ERISA. The term "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
1.12. Plan Year. The term "Plan Year" shall mean the Employer's fiscal
---------
year.
1.13. Retirement. The term "Retirement" or "Retires" shall refer to the
----------
date which the Employee acknowledges in writing to the Employer to be the last
day the Employee will provide any significant personal services, whether as an
employee or independent consultant or contractor, to the Employer or to, for, or
on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal services"
shall mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period for compensation excluding
services, if any, rendered by the Employee after Retirement pursuant to the
terms of a consulting agreement described in Schedule "C", if any.
1.14. Surviving Spouse. The term "Surviving Spouse" shall mean the
----------------
person, if any, who shall be legally married to the Employee on the date of the
Employee's death.
1.15. Termination for Cause. The term "Termination for Cause" shall mean
---------------------
termination of the employment of the Employee by reason of any of the following:
(a) The Employee's deliberate violation of (i) any state or federal
banking or securities laws, or of the Bylaws, rules, policies or resolutions of
the Employer, or (ii) of the rules or regulations of the California Commissioner
of Financial Institutions, the Federal Deposit Insurance Corporation, the
Federal Reserve Board of Governors, the Office of the Comptroller of the
Currency or any other regulatory agency or governmental authority having
jurisdiction over the Employer, which has a material adverse effect upon the
Employer; or
(b) The Employee's conviction of (i) any felony or (ii) a crime
involving moral turpitude or a fraudulent or dishonest act which, in each case,
has a material adverse effect on the Employer.
2. Scope, Purpose and Effect.
-------------------------
2.1. Contract of Employment. Although this Agreement is intended to
----------------------
provide the Employee with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Employee and the Employer nor shall any provision of this
Agreement restrict or expand the right of the Employer to terminate
-5-
<PAGE>
the Employee's employment. This Agreement shall have no impact or effect upon
any separate written Employment Agreement which the Employee may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart from, and shall have no effect upon, or be
affected by, the terms and provisions of said Employment Agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted
--------------
by the Employer as a fringe benefit to the Employee and are not a part of any
salary reduction plan or any arrangement deferring a bonus or a salary increase.
The Employee has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
-----------------------------------------------------------------
3.1. Payments Upon Early Retirement. The Employee shall have the right
------------------------------
to Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Employee elects to Retire on a date
which constitutes an Early Retirement Date, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee Benefits specified in Schedule
"B", payable in substantially equal monthly installments on the first day of
each month, beginning with the month following the month in which the Early
Retirement Date occurs (or on such later date as may be mutually agreed upon by
the Employee and the Employer in advance of such Early Retirement Date) (i) for
the period designated in Schedule "F", in the case of the balance in the Benefit
Account and (ii) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B".
-6-
<PAGE>
EXAMPLE
Payments Upon Early Retirement
<TABLE>
<CAPTION>
Assumptions:
- -----------
<S> <C>
Age at Early Retirement 60
Normal Retirement Age 62
Projected Benefit Account Value at Age 62 $100,000
Actual Benefit Account Value at Age 60 $20,000
Distribution Period Elected for Benefit Account (Schedule F) 10 yrs.
Projected Index Benefit at Age 62 $50,000
Projected Index Benefit at Age 60 $25,000
Applicable Percentage at Age 60 75%
First Year Benefit Calculation: Age 60
1) Benefit Account [($20,000 )10) x .75] $1,500
2) Index Benefit ($25,000 x .75) $18,750
-------
Total First Year Benefit $20,250
=======
</TABLE>
3.2. Payments Upon Retirement. If the Employee shall remain in the
------------------------
continuous employment of the Employer until attaining sixty-two (62) years of
age, the Employee shall be entitled to be paid the Applicable Percentage of the
Employee Benefits specified in Schedule "B", payable in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Employee Retires (or on such later date as may
be mutually agreed upon by the Employee and the Employer in advance of said
Retirement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
-7-
<PAGE>
3.3. Payments in the Event of Death After Retirement. The Employer
-----------------------------------------------
agrees that if the Employee Retires, but shall die before receiving all of the
Employee Benefits, the Employer will make such payments to which the Employee
may be entitled, to the Employee's designated beneficiary in lump sum. If a
valid Beneficiary Designation is not in effect, then the remaining amounts due
to the Employee under the terms of this Agreement shall be paid to the
Employee's Surviving Spouse. If the Employee leaves no Surviving Spouse, the
remaining amounts due to the Employee under the terms of this Agreement shall be
paid to the duly qualified personal representative, executor or administrator of
the Employee's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
--------------------------------------------------------------------
4.1. Payments in the Event of Death Prior to Retirement. If the Employee
--------------------------------------------------
dies while actively employed by the Employer at any time after the Effective
Date of this Agreement, but prior to Retirement, the Employer agrees to pay the
Employee Benefits to which the Employee is then entitled to the Employee's
designated beneficiary in lump sum. If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Employee under the terms of this
Agreement shall be paid to the Employee's Surviving Spouse. If the Employee
leaves no Surviving Spouse, the remaining amounts due to the Employee under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Employee's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the
-------------------------------------------------------
event the Employee becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Employee shall be entitled to be paid the
Applicable Percentage of the Employee Benefits specified in Schedule "B",
payable in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Employee
becomes Disabled (or on such later date as may be mutually agreed upon by the
Employee and the Employer not less than fifteen (15) days prior to such
commencement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
5. Payments in the Event Employment Is Terminated Prior to Retirement.
-------------------------------------------------------------------
As indicated in subparagraph 2.1 above, the Employer reserves the right to
terminate the Employee's employment, with or without cause but subject to any
written employment agreement which may then exist, at any time prior to the
Employee's Retirement. In the event that the employment of the Employee shall be
terminated, other than by reason of death, Disability or Retirement, prior to
the Employee's attaining sixty-two (62) years of age, then this Agreement shall
terminate on the date of such termination of employment; provided, however, that
the Employee shall be entitled to the following benefits as may be applicable
depending upon the circumstances surrounding the Employee's termination:
5.1. Termination Without Cause. If the Employee's employment is
-------------------------
terminated by the Employer without cause, and such termination is not subject to
the provisions of subparagraph 5.4 below, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee
-8-
<PAGE>
Benefits specified in Schedule "B", payable in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Employee attains sixty-two (62) years of age (or on such
later date as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) (i) for the period
designated in Schedule "F", in the case of the balance in the Benefit Account
and (ii) until the Employee's death, in the case of the Index Benefit defined in
Schedule "B".
5.2. Voluntary Termination by the Employee. If the Employee's employment
-------------------------------------
is terminated by voluntary resignation, and such resignation is not subject to
the provisions of subparagraph 5.4 below, the Employee shall be entitled to be
paid the following benefits:
(a) If the Applicable Percentage at the date of termination is one
hundred percent (100%), the Employee shall be paid (i) the Employee Benefits
specified in Schedule "B", payable in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Employee attains sixty-two (62) years of age (or on such later date as
may be mutually agreed upon by the Employee and the Employer not less than
fifteen (15) days prior to such commencement date) (A) for the period designated
in Schedule "F", in the case of the balance in the Benefit Account and (B) until
the Employee's death, in the case of the Index Benefit defined in Schedule "B".
(b) If the Applicable Percentage at the date of termination is less
than one hundred percent (100%), the Employee shall be paid the Applicable
Percentage of the Employee Benefits specified in Schedule "B", based on a ten
(10) year (120 month) payout of the Benefit Account balance at termination
notwithstanding the Employee's election of a different payout period under
Schedule "F", but not more than sixty percent (60%) of the Employee's base
salary (i.e., exclusive of any bonuses, incentive payments or other employee
benefits to which the Employee would otherwise be entitled) at the date of
termination. Such benefit shall be payable in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Employee attains sixty-two (62) years of age (or on such
later date as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) (A) for the period
of one hundred twenty (120) months, in the case of the balance in the Benefit
Account and (B) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B" (subject to reduction upon application of the sixty
(60%) limitation described above).
5.3. Termination for Cause. If the Employee suffers a "Termination for
---------------------
Cause", as defined in subparagraph 1.15 of this Agreement, the Employee shall
forfeit any and all rights and benefits the Employee may have under the terms of
this Agreement and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Employee by the Employer pursuant to the terms
of this Agreement.
-9-
<PAGE>
5.4. Termination by the Employer on Account of or After a Change in
--------------------------------------------------------------
Control. In the event the Employee's employment with the Employer is terminated
- -------
by the Employer "in connection with a Change in Control" as described in
subparagraph 1.2(a) and as defined in subparagraph 1.4 above, the Employee shall
be entitled to be paid the Applicable Percentage of the Employee Benefits
specified in Schedule "B", in substantially equal monthly installments on the
first day of each month, beginning with the month following the month in which
the Employee attains fifty-nine and one-half (59.5) years of age or any month
thereafter, as requested in writing by the Employee and delivered to the
Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Employee does not
request a commencement date as specified, such installments shall be paid on the
first day of each month, beginning with the month following the month in which
the Employee attains sixty-two (62) years of age. The installments shall be
payable (i) for the period designated in Schedule "F" in the case of the balance
in the Benefit Account and (ii) until the Employee's death in the case of the
Index Benefit defined in Schedule "B".
5.5. Payments in the Event of Death Following Termination. If the
----------------------------------------------------
Employee shall die prior to receiving all of the applicable benefits described
in this Paragraph 5 to which the Employee is entitled, then the Employer will
make such payments to the Employee's designated beneficiary. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Employee shall be paid to the Employee's Surviving Spouse. If the Employee
leaves no Surviving Spouse, the remaining amounts due to the Employee shall be
paid to the duly qualified personal representative, executor or administrator of
the Employee's estate.
6. Section 280G Benefits Adjustment. If all or any portion of the
-----------------------------------
amounts payable to the Employee under this Agreement, either alone or together
with other payments which the Employee has the right to receive from the
Employer, constitute "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are
subject to the excise tax imposed by Section 4999 of the Code (or similar tax
and/or assessment), the Employer (and its successor) shall increase the amounts
payable under this Agreement to the extent necessary to afford the Employee
substantially the same economic benefit under this Agreement as the Employee
would have received had no such excise tax been imposed on the payments due the
Employee under this Agreement. The determination of the amount of any such
excise taxes shall be made initially by the independent accounting firm employed
by the Employer immediately prior to the occurrence of the event constituting a
Change in Control.
If, at a later date, it is determined (pursuant to final regulations or
published rulings of the Internal Revenue Service, final judgment of a court of
competent jurisdiction, or otherwise) that the amount of excise taxes payable to
the Employee is greater than the amount initially so determined, then the
Employer (or its successor) shall pay to the Employee an amount equal to the sum
of (i) such additional excise taxes, and (ii) any interest, fines and penalties
resulting from such underpayment, plus (iii) an amount necessary to reimburse
the Employee substantially for any income, excise or other taxes payable by the
Employee with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii).
7. Right To Determine Funding Methods. The Employer reserves the right to
----------------------------------
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Employee, the Employee's
-10-
<PAGE>
spouse or the Employee's beneficiaries under the terms of this Agreement. In the
event that the Employer elects to fund this Agreement, in whole or in part,
through the use of life insurance or annuities, or both, the Employer shall
determine the ownership and beneficial interests of any such policy of life
insurance or annuity. The Employer further reserves the right, in its sole and
absolute discretion, to terminate any such policy, and any other device used to
fund its obligations under this Agreement, at any time, in whole or in part.
Consistent with Paragraph 9 below, neither the Employee, the Employee's spouse
nor the Employee's beneficiaries shall have any right, title or interest in or
to any funding source or amount utilized by the Employer pursuant to this
Agreement, and any such funding source or amount shall not constitute security
for the performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Employee agrees to execute such documents and
undergo such medical examinations or tests which the Employer may request and
which may be reasonably necessary to facilitate any funding for this Agreement
including, without limitation, the Employer's acquisition of any policy of
insurance or annuity. Furthermore, a refusal by the Employee to consent to,
participate in and undergo any such medical examinations or tests shall result
in the immediate termination of this Agreement and the immediate forfeiture by
the Employee, the Employee's spouse and the Employee's beneficiaries of any and
all rights to payment hereunder.
8. Claims Procedure. The Employer shall, but only to the extent necessary
----------------
to comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, the Employer shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Employer denying a claim by the Employee, the Employee's spouse, or the
Employee's beneficiary for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Employee, the Employee's spouse or the Employee's beneficiary, as the case may
be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Employer shall provide the Employee, the Employee's
spouse or the Employee's beneficiary with a reasonable opportunity for a full
and fair review of the decision denying such claim.
9. Status Under Secular Trust and as an Unsecured General Creditor.
---------------------------------------------------------------
(a) The Employee has established a secular trust, identified as the
Susan K. Black Secular Trust, a copy of which is attached hereto as Schedule "G"
(the "Trust"). The Employer shall make contributions to the Trust as specified
in Schedule "C" of this Agreement. The contributions shall be deposited into an
account which constitutes the Trust Fund as defined in the Trust.
Notwithstanding anything contained herein to the contrary, the Trust Fund shall
not be subject to the claims of the Employer's general creditors except as may
be expressly stated in the Trust. In the event of a conflict between the
provisions of the Trust and this Agreement, the provisions of the Trust shall
control.
(b) Except as provided in subparagraph 9(a) above: (i) neither the
Employee, the Employee's spouse or the Employee's designated beneficiaries shall
have any legal or equitable rights, interests or claims in or to any specific
property or assets of the Employer as a result of this Agreement; (ii) none of
the Employer's assets shall be held in or under any trust for the benefit of the
Employee, the Employee's spouse or the Employee's designated beneficiaries or
held in any way as security for the fulfillment of the obligations of the
Employer under this Agreement; (iii) all of
-11-
<PAGE>
the Employer's assets shall be and remain the general unpledged and unrestricted
assets of the Employer; (iv) the Employer's obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Employer to pay money
in the future; and (v) the Employee, the Employee's spouse and the Employee's
designated beneficiaries shall be unsecured general creditors with respect to
any benefits which may be payable under the terms of this Agreement.
(c) Notwithstanding subparagraphs 9(b)(i) through 9(b)(v) above, the
Employer and the Employee acknowledge and agree that, in the event of a Change
in Control and at the written request of the Employee, the Employer shall
establish, not later than the effective date of the Change in Control, a Rabbi
Trust or multiple Rabbi Trusts upon such terms and conditions as the Employer in
its sole discretion deems appropriate and in compliance with applicable
provisions of the Code in order to permit the Employer to make contributions
and/or transfer assets to the Rabbi Trust or Rabbi Trusts to discharge its
obligations pursuant to this Agreement. The principal of the Rabbi Trust or
Rabbi Trusts and any earnings thereon shall be held separate and apart from
other funds of the Employer to be used exclusively for discharge of the
Employer's obligations pursuant to this Agreement and shall continue to be
subject to the claims of the Employer's general creditors until paid to the
Employee or its beneficiaries in such manner and at such times as specified in
this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the
----------------------------------------
other provisions of this Agreement, the Board of Directors of the Employer may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Employee (or the Employee's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Employer's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors and offered to the Employee [or Employee's spouse
or designated beneficiaries] on a "take it or leave it basis").
-12-
<PAGE>
11. Miscellaneous.
-------------
11.1. Opportunity To Consult With Independent Advisors. The Employee
------------------------------------------------
acknowledges that the Employee has been afforded the opportunity to consult with
independent advisors of his or her choosing including, without limitation,
accountants or tax advisors and counsel regarding both the benefits granted to
the Employee under the terms of this Agreement and the (i) terms and conditions
which may affect the Employee's right to these benefits and (ii) personal tax
effects of such benefits including, without limitation, the effects of any
federal or state taxes, Section 280G of the Code, and any other taxes, costs,
expenses or liabilities whatsoever related to such benefits, which in any of the
foregoing instances the Employee acknowledges and agrees shall be the sole
responsibility of the Employee notwithstanding any other term or provision of
this Agreement. The Employee further acknowledges and agrees that the Employer
shall have no liability whatsoever related to any such personal tax effects or
other personal costs, expenses, or liabilities applicable to the Employee and
further specifically waives any right for the Employee and his or her heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Employer related to the matters described
above in this subparagraph 11.1. The Employee further acknowledges and agrees
that the Employee has read, understands and consents to all of the terms and
conditions of this Agreement, and that the Employee enters into this Agreement
with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters
-----------------------
in question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Employer in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
in San Francisco, California. In the event JAMS is unable or unwilling to
conduct the arbitration provided for under the terms of this Paragraph, or has
discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), in San Francisco, California, shall conduct the binding
arbitration referred to in this Paragraph. Notice of the demand for arbitration
shall be filed in writing with the other party to this Agreement and with JAMS
(or AAA, if necessary). In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statute of limitations. The arbitration shall be subject to such rules of
procedure used or established by JAMS, or if there are none, the rules of
procedure used or established by AAA. Any award rendered by JAMS or AAA shall be
final and binding upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and assigns, and may be
entered in any court having jurisdiction thereof. The obligation of the parties
to arbitrate pursuant to this clause shall be specifically enforceable in
accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Jose, California, unless otherwise agreed to
by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation
---------------
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The
-13-
<PAGE>
"prevailing party" means the party determined by the arbitrator(s) or court, as
the case may be, to have most nearly prevailed, even if such party did not
prevail in all matters, not necessarily the one in whose favor a judgment is
rendered.
11.4. Notice. Any notice required or permitted of either the Employee
------
or the Employer under this Agreement shall be deemed to have been duly given, if
by personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Human Resources
If to the Employee: Susan K. Black
[omitted]
11.5. Assignment. Neither the Employee, the Employee's spouse, nor any
----------
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Employee, the Employee's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Employer. The Employer's consent, if any, to one or more
assignments or transfers shall not obligate the Employer to consent to or be
construed as the Employer's consent to any other or subsequent assignment or
transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of the Employee and the Employer and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used in this Agreement
shall be deemed to refer to such surviving or successor firm, person, entity or
corporation.
-14-
<PAGE>
11.7. Non-waiver. The failure of either party to enforce at any time or
----------
for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or
------------------
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement, including the schedules and
----------------
exhibits attached hereto and incorporated herein by this reference, contains all
of the covenants and agreement, and supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the subject
matter of this Agreement. Each party to this Agreement acknowledges that no
other representations, inducements, promises, or agreements, oral or otherwise,
have been made by any party, or anyone acting on behalf of any party, which are
not set forth herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be
-------------
effective only if it is in writing and signed by each party or such party's
authorized representative.
11.11. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
11.13. Governing Law. The laws of the State of California, other than
-------------
those laws denominated choice of law rules, and, where applicable, the rules and
regulations of the California Commissioner of Financial Institutions, the
Federal Deposit Insurance Corporation, the Federal Reserve Board of Governors
and the Office of the Comptroller of the Currency, shall govern the validity,
interpretation, construction and effect of this Agreement.
11.14. Waiver of Prior Plan Benefit. To the extent that the Employee is
----------------------------
a participant in any other supplemental benefit plan provided by the Employer
which affords the Employee benefits in the event of the Employee's retirement or
death or a change in control of the Employer, it is an express condition
precedent to the effectiveness of this Agreement that the Employee execute and
deliver the Waiver of Prior Plan Benefit attached as Schedule "D" to this
Agreement.
-15-
<PAGE>
IN WITNESS WHEREOF, the Employer and the Employee have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER THE EMPLOYEE
Mid-Peninsula Bank,
a California banking corporation
By: /s/ Shawn E. Saunders /s/ Susan K. Black
--------------------- ------------------
Shawn E. Saunders Susan K. Black
Chief Financial Officer
-16-
<PAGE>
SCHEDULE A
----------
Applicable
Calendar Year Percentage
12/31/97 70%
12/31/98 80%
12/31/99 90%
12/31/00 100%
<PAGE>
SCHEDULE B
----------
INDEX EMPLOYEE BENEFITS
-----------------------
1. Index Employee Benefits Determination. The Index Employee Benefits
-------------------------------------
consist of (i) accruals to the Employee's Benefit Account (as described in
subparagraph (a) below) during the Employee's employment by the Employer and
(ii) the Index Benefit (as described in subparagraph (b) below) after the
Employee's employment by the Employer terminates. The Index Employee Benefits
shall be determined based upon the following:
a. Benefit Account: A Benefit Account shall be established as a
---------------
liability reserve account on the books of the Employer for the benefit of the
Employee. Prior to the date on which the Employee becomes eligible to receive
payments under the Plan, such Benefit Account shall be increased (or decreased)
each Plan Year by an amount equal to the annual earnings (or loss) for that Plan
Year determined by the Index (described in subparagraph c below), less the
Opportunity Cost (described in subparagraph d below) for that Plan Year.
b. Index Benefit: After the date on which the Employee becomes eligible
-------------
to receive payments under the Plan, the Index Benefit for the Employee for any
Plan Year shall be determined by subtracting the Opportunity Cost for that Plan
Year from the annual earnings (if any) for that Plan year determined by the
Index.
c. Index: The Index for any Plan Year shall be the aggregate annual
-----
after-tax income from the life insurance contracts ----- described hereinafter
as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if
such insurance contracts were purchased on the Effective Date.
<TABLE>
<S> <C>
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $191,227
-------------
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $390,000
-------------
</TABLE>
If such contracts of life insurance are actually purchased by the Employer, then
the actual policies as of the dates purchased shall be used in calculations to
determine the Index and Opportunity Cost. If such contracts of life insurance
are not purchased or are subsequently surrendered or lapsed, then the Employer
shall receive and use annual policy illustrations that assume the above
described policies were purchased from the above named insurance company(ies) on
the Effective Date to calculate the amount of the Index and Opportunity Cost.
<PAGE>
d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be
----------------
calculated by multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount of any Index
Benefits (described at subparagraph b above), and (iii) the amount of all
previous years after-tax Opportunity Costs; by (b) the average annualized
after-tax cost of funds calculated using a one-year U.S. Treasury Bill as
published in the Wall Street Journal. The applicable tax rate used to calculate
the Opportunity Cost shall be the Employer's marginal tax rate until the
Employee's Retirement, or other termination of service (including a Change in
Control). Thereafter, the Opportunity Cost shall be calculated with the
assumption of a marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Employer is higher or
lower.
2. Employee Benefits Payments. The Employee shall be entitled to payment
--------------------------
of the Index Employee Benefits on the terms as specified in the Agreement.
EXAMPLE
INDEX EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
[n] [A] [B] [C] [D]
End of Year Cash Surrender Value of Life Index Opportunity Cost Annual Benefit
- ----------- -------------------------------- ----- ---------------- --------------
Insurance Policy [Annual Policy A0 = premium B-C
----------------
Income] A0+Cn-1x.05x
An-An-1 (1-42%)
<S> <C> <C> <C> <C>
0 $1, 000,000 -- -- --
1 $1,050,000 $50,000 $29,000 $21,000
2 $1,102,500 $52,500 $29,841 $22,659
3 $1,157,625 $55,125 $30,706 $24,419
</TABLE>
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
-19-
<PAGE>
SCHEDULE C
----------
SUPPLEMENTAL BENEFITS
---------------------
In addition to the Employee Benefits specified elsewhere in this Agreement,
the Employee shall be entitled to receive the following supplemental benefits
(the "Supplemental Benefits"):
Secular Trust Defined Benefit. Provided that the Employee has not exercised
the Employee's withdrawal rights under the Trust, the Employer shall make
contributions to the Trust, pursuant to paragraph 9 of the Agreement, on a
pre-tax basis in the amounts shown in column (B) of the following table. Such
contributions shall be made from time to time in the discretion of the Employer
provided that the total amount shown in column (B) below has been contributed to
the Trust by the end of the Plan Year shown in column (A) below.
(A) (B)
1998 $50,506
1999 $36,384
2000 $40,786
2001 $45,581
2002 $50,799
2003 $56,475
2004 $62,645
2005 $69,347
2006 $76,623
2007 $84,517
2008 $93,079
2009 $102,358
2010 $112,412
2011 $123,299
The aggregate amount of the foregoing contributions shall be subject to
adjustment, from time to time, to ensure that the Trust is adequately funded to
afford the Employee with a projected defined benefit equal to the Applicable
Percentage of Forty Five Thousand Eight Hundred Forty-Six Dollars ($45,846) per
annum for twenty (20) years commencing the year in which the Employee attains
age sixty-two (62). In the event that the contributions made by the Employer to
the Trust as provided above are determined to be insufficient to fund the
foregoing Supplemental Benefits, the Employer
-20-
<PAGE>
shall make such further contributions to the Trust as may be necessary to fund
fully such Supplemental Benefits. Such determination and adjusting
contributions, if required, may be made from time to time at the discretion of
the Employer, but in all events not later than the date on which the Employee
Retires or otherwise becomes eligible to begin receiving the Employee Benefits
specified in Schedule "B". Provided that the foregoing final adjusting
contribution, if required, has been made, the Employer shall have no obligation
to make further contributions to the Trust once the Employee Retires or
otherwise becomes eligible to begin receiving the Employee Benefits specified in
Schedule "B".
Notwithstanding anything herein or in the Agreement to the contrary, the
obligation of the Employer to make the contributions to the Trust as specified
above shall terminate automatically upon the forfeiture or other termination of
the Employee's right to receive the Employee Benefits specified in Schedule "B",
as provided in this Agreement.
-21-
<PAGE>
SCHEDULE D
----------
WAIVER OF PRIOR PLAN BENEFITS
-----------------------------
In consideration for the Employee Benefits made available to the Employee
by this Employee Supplemental Compensation Benefits Agreement (the "Agreement"),
the Employee acknowledges and agrees as follows:
(a) The Employee is a party to that certain ___________________________
Agreement made with the Employer or its predecessor dated ____________, 19__
(the "Prior Plan Agreement");
(b) This Agreement and the Employee Benefits hereunder are provided as a
substitute for the Prior Plan Agreement and the benefits provided thereunder;
(c) The Prior Plan Agreement and the benefits thereunder are hereby
terminated effective as of the date of this Agreement;
(d) The Employee hereby waives and relinquishes for himself or herself,
and his or her heirs, beneficiaries, legal representatives, agents, successors
and assigns, any and all right, entitlement and interest that the Employee has
or may have pursuant to the Prior Plan Agreement and the benefits thereunder;
(e) The Employee accepts the Employee Benefits afforded by this
Agreement in full and complete substitution for the benefits otherwise provided
by the Prior Plan Agreement; and
(f) Without limiting the scope and effect of subparagraph 11.1 of the
Agreement, the Employee (i) has had an opportunity to consult with advisors of
the Employee's own choice in determining to enter into this Agreement and this
Waiver, (ii) understands that the effect of this Waiver is to terminate, waive
and relinquish forever all rights, entitlements and interests that the Employee
has or may have under the Prior Plan Agreement and the benefits thereunder as a
condition to receiving the Employee Benefits under this Agreement; and (iii) the
Employee is entering into this Agreement and this Waiver voluntarily and with
full appreciation of the effect of doing so.
Dated: , 1998
---------------------------- -------------------------------
Susan K. Black
I consent to and agree to be bound by the foregoing Waiver:
- ------------------------------------------
Aris Angelopoulos, Spouse of Susan K. Black
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<PAGE>
SCHEDULE E
-----------
BENEFICIARY DESIGNATION
-----------------------
To the Administrator of the Mid-Peninsula Bank Employee Supplemental
Compensation Benefits Agreement:
Pursuant to the Provisions of my Employee Supplemental Compensation
Benefits Agreement with Mid-Peninsula Bank, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
Primary Beneficiary:
- -------------------
- ------------------------- -------------------------- ----------------
Name Address Relationship
Secondary (Contingent) Beneficiary:
- ----------------------------------
- ------------------------- -------------------------- ----------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Employee Supplemental Compensation Benefits
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit payable according to the terms of my
Employee Supplemental Compensation Benefits Agreement shall be payable to the
personal representatives of the estate of said beneficiary who survived me but
died prior to receiving the total benefit provided by my Employee Supplemental
Compensation Benefits Agreement.
Dated: , 1998
---------------------------- ----------------------------------
Susan K. Black
-23-
<PAGE>
CONSENT OF THE EMPLOYEE'S SPOUSE
- --------------------------------
TO THE ABOVE BENEFICIARY DESIGNATION:
- ------------------------------------
I, Aris Angelopoulos, being the spouse of Susan K. Black, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Employee Supplemental Compensation
Benefits Agreement entered into by my spouse effective as of January 1, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Employee
Supplemental Compensation Benefits Agreement and in which I may have a marital
property interest.
Dated: , 1998
----------------------------
- -------------------------------------------
Aris Angelopoulos
-24-
<PAGE>
SCHEDULE F
----------
DISTRIBUTION ELECTION
---------------------
Pursuant to the Provisions of my Employee Supplemental Compensation Benefits
Agreement with Mid-Peninsula Bank, I hereby elect to have any distribution of
the balance in my Benefit Account paid to me in installments as designated
below:
---- sixty (60) monthly installments with the amount of each installment
determined as of each installment date by dividing the entire amount
in my Benefit Account by the number of installments then remaining to
be paid, with the final installment to be the entire remaining balance
in the Benefit Account.
---- one hundred twenty (120) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
---- one hundred eighty (180) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
Dated: , 1998
----------------------------
Signed:
--------------------------------------
Susan K. Black
-25-
<PAGE>
SCHEDULE G
----------
SECULAR TRUST
-------------
[to be finalized]
-26-
<PAGE>
EXHIBIT 10.4
EMPLOYEE SUPPLEMENTAL COMPENSATION BENEFITS AGREEMENT
-----------------------------------------------------
This Employee Supplemental Compensation Benefits Agreement (the
"Agreement") is made and entered into effective as of January 1, 1998, by and
between Cupertino National Bank, a California corporation (the "Employer"), and
David R. Hood, an individual residing in the State of California (the
"Employee").
R E C I T A L S
---------------
WHEREAS, the Employee is an employee of the Employer, and, since April 11,
1995, has become eligible to participate in the Employee Supplemental
Compensation Benefits Plan represented by this Agreement (the "Plan");
WHEREAS, the Employer desires to establish a compensation benefits program
as a fringe benefit for certain officers of the Employer in order to attract and
retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Employee's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Employee with certain benefits, on the terms and conditions set
forth herein, in order to reasonably induce the Employee to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer;
WHEREAS, it is the intention of the parties that the Employer's obligations
under this Agreement shall be that of an unfunded and unsecured promise to
provide the benefits to the Employee set forth hereinafter and except for the
contributions, if any, to a secular trust to be established by the Employee as
grantor, the Employee and the Employee's beneficiaries shall be unsecured
general creditors with respect to any benefits provided under the terms of this
Agreement; and
WHEREAS, the Employee and the Employer wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Employee, or to the Employee's spouse or the Employee's
designated beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Employee in the future, as well as the mutual promises and covenants contained
herein, the Employee and the Employer agree as follows:
<PAGE>
A G R E E M E N T
-----------------
1. Terms and Definitions.
---------------------
1.1. Administrator. The Employer shall be the "Administrator" and,
-------------
solely for the purposes of ERISA, as defined in subparagraph 1.11 below, the
"fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall mean
---------------------
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Employee's commencement of employment with and providing personal services to
the Employer or, if later, the date on which the Employee became eligible to
participate in the Plan represented by this Agreement, and ending on the date
payments are to first begin under the terms of this Agreement. Notwithstanding
the foregoing or the percentages set forth on Schedule "A", but subject to all
other terms and conditions set forth herein, the "Applicable Percentage" shall
be:
(a) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
termination of the Employee's employment by the Employer if such termination is
in connection with a "Change in Control" as defined in subparagraph 1.4 below. A
termination shall be deemed to be in connection with a Change in Control if,
within two (2) years following the occurrence of a Change in Control: (i) the
Employee's employment with the Employer is terminated by the Employer other than
a Termination for Cause; or (ii) by reason of the Employer's actions any adverse
and material change occurs in the scope of the Employee's position,
responsibilities, duties, salary, benefits or location of employment; or (iii)
the Employer causes an event to occur which reasonably constitutes or results in
a demotion, a significant diminution of responsibilities or authority, or a
constructive termination (by forcing a resignation or otherwise) of the
Employee's employment;
(b) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
occurrence of (i) the Employee's death prior to the termination of the
Employee's employment by the Employer, or (ii) the Employee's Disability (as
defined in subparagraph 1.6 below) other than a Disability that occurs after the
termination of the Employee's employment by the Employer; and
(c) notwithstanding subclauses (a) and (b) of this subparagraph
1.2, zero percent (0%) in the event the Employee takes any intentional action
which prevents the Employer from collecting the proceeds of any life insurance
policy which the Employer may happen to own at the time of the Employee's death
and of which the Employer is the designated beneficiary (the "Employer Cost
Recovery Policy"). Furthermore, notwithstanding the foregoing, or anything
contained in this Agreement to the contrary, in the event the Employee takes any
intentional action which prevents the Employer from collecting the proceeds of
any Employer Cost Recovery Policy, then: (1) the Employee, the Employee's
estate, designated beneficiary or Surviving Spouse shall no longer be entitled
to receive any of the amounts payable under the terms of this Agreement, and
-2-
<PAGE>
(2) the Employer shall have the right to recover from Employee's estate and/or
Surviving Spouse all of the amounts paid to the Employee's estate or Surviving
Spouse, as the case may be (with respect to amounts paid prior to the Employee's
death or paid to the Employee's estate or Surviving Spouse) or from the
Employee"s designated beneficiary (with respect to amounts paid to the
designated beneficiary) pursuant to the terms of this Agreement prior to and
after Employee's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary"
-----------
shall mean the person or persons whom the Employee shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "E," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof and is
completed and signed by the Employee and received by the Administrator prior to
the Employee's death.
1.4. Change in Control. The term "Change in Control" shall mean the
-----------------
first to occur of any of the following events with respect to the Employer (with
the term "Employer" being defined for purposes of determining whether a "Change
in Control" has occurred to include any parent bank holding company which owns
100% of the Employer's outstanding voting capital stock):
(a) Any "person" (as such term is used in sections 13 and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
becomes the beneficial owner (as that term is used in section 13(d) of the
Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of
the Employer's capital stock entitled to vote in the election of directors,
other than a group of two or more persons not (i) acting in concert for the
purpose of acquiring, holding or disposing of such stock or (ii) otherwise
required to file any form or report with any governmental agency or regulatory
authority having jurisdiction over the Employer which requires the reporting of
any change in control;
(b) During any period of not more than two (2) consecutive years,
not including any period prior to the adoption of the Plan represented by this
Agreement, individuals who, at the beginning of such period, constitute the
Board of Directors of the Employer, and any new director (other than a director
designated by a person who has entered into an agreement with the Employer to
effect a transaction described in clause (a), (c), (d) or (e) of this
subparagraph 1.4) whose appointment to the Board of Directors or nomination for
election to the Board of Directors was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office, either were
directors at the beginning of such period or whose appointment or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof;
(c) The effective date of any consolidation or merger of the
Employer (after all requisite shareholder, applicable regulatory and other
approvals and consents have been obtained), other than a consolidation or merger
of the Employer in which the holders of the voting capital stock of the Employer
immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the voting capital stock of the surviving entity immediately after the
consolidation or merger;
-3-
<PAGE>
(d) The shareholders of the Employer approve any plan or proposal
for the liquidation or dissolution of the Employer; or
(e) The shareholders of the Employer approve the sale or transfer
of substantially all of the Employer's assets to parties that are not within a
"controlled group of corporations" (as that term is defined in section 1563 of
the Code) in which the Employer is a member.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986,
--------
as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall
-------------------
have the same meaning given such terms in any policy of disability insurance
maintained by the Employer for the benefit of employees including the Employee.
In the absence of such a policy which extends coverage to the Employee in the
event of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of the
Employee's duties to the Employer for at least ninety (90) days.
1.7. Early Retirement Date. The term "Early Retirement Date" shall mean
---------------------
the Retirement, as defined below, of the Employee on a date which occurs prior
to the Employee attaining sixty-two (62) years of age, as defined below, but
after the Employee has attained fifty-nine and one-half (59.5) years of age.
1.8. Effective Date. The term "Effective Date" shall mean the date
--------------
first written above.
1.9. Employee Benefits. Except as otherwise stated in this Agreement,
-----------------
the term "Employee Benefits" shall mean the Index Employee Benefits, if any,
described in and determined in accordance with Schedule "B" and the supplemental
benefits described in and determined in accordance with Schedule "C", and
reduced or adjusted to the extent: (i) required under the other provisions of
this Agreement; (ii) required by reason of the lawful order of any regulatory
agency or body having jurisdiction over the Employer; or (iii) required in order
for the Employer to properly comply with any and all applicable state and
federal laws, including, but not limited to, income, employment and disability
income tax laws (e.g., FICA, FUTA, SDI).
-4-
<PAGE>
1.10. Employer. Except as otherwise set forth in this Agreement, the
--------
term "Employer" shall mean Greater Bay Bancorp; provided, however, that for
purposes of subparagraph 1.15 (definition of Termination for Cause) and
Paragraph 5 (including its subparagraphs, regarding termination of employment),
the term "Employer" shall mean Greater Bay Bancorp and its subsidiaries and
affiliated entities.
1.11. ERISA. The term "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
1.12. Plan Year. The term "Plan Year" shall mean the Employer's fiscal
---------
year.
1.13. Retirement. The term "Retirement" or "Retires" shall refer to the
----------
date which the Employee acknowledges in writing to the Employer to be the last
day the Employee will provide any significant personal services, whether as an
employee or independent consultant or contractor, to the Employer or to, for, or
on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal services"
shall mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period for compensation excluding
services, if any, rendered by the Employee after Retirement pursuant to the
terms of a consulting agreement described in Schedule "C", if any.
1.14. Surviving Spouse. The term "Surviving Spouse" shall mean the
-----------------
person, if any, who shall be legally married to the Employee on the date of the
Employee's death.
1.15. Termination for Cause. The term "Termination for Cause" shall
---------------------
mean termination of the employment of the Employee by reason of any of the
following:
(a) The Employee's deliberate violation of (i) any state or federal
banking or securities laws, or of the Bylaws, rules, policies or resolutions of
the Employer, or (ii) of the rules or regulations of the California Commissioner
of Financial Institutions, the Federal Deposit Insurance Corporation, the
Federal Reserve Board of Governors, the Office of the Comptroller of the
Currency or any other regulatory agency or governmental authority having
jurisdiction over the Employer, which has a material adverse effect upon the
Employer; or
(b) The Employee's conviction of (i) any felony or (ii) a crime
involving moral turpitude or a fraudulent or dishonest act which, in each case,
has a material adverse effect on the Employer.
2. Scope, Purpose and Effect.
-------------------------
2.1. Contract of Employment. Although this Agreement is intended to
----------------------
provide the Employee with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Employee and the Employer nor shall any provision of this
Agreement restrict or expand the right of the Employer
-5-
<PAGE>
to terminate the Employee's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the Employee may
have with the Employer, it being the parties' intention and agreement that
unless this Agreement is specifically referenced in said Employment Agreement
(or any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart from, and shall have no effect upon,
or be affected by, the terms and provisions of said Employment Agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are
--------------
granted by the Employer as a fringe benefit to the Employee and are not a part
of any salary reduction plan or any arrangement deferring a bonus or a salary
increase. The Employee has no option to take any current payments or bonus in
lieu of the benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
-----------------------------------------------------------------
3.1. Payments Upon Early Retirement. The Employee shall have the right
------------------------------
to Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Employee elects to Retire on a date
which constitutes an Early Retirement Date, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee Benefits specified in Schedule
"B", payable in substantially equal monthly installments on the first day of
each month, beginning with the month following the month in which the Early
Retirement Date occurs (or on such later date as may be mutually agreed upon by
the Employee and the Employer in advance of such Early Retirement Date) (i) for
the period designated in Schedule "F", in the case of the balance in the Benefit
Account and (ii) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B".
-6-
<PAGE>
EXAMPLE
Payments Upon Early Retirement
<TABLE>
<CAPTION>
Assumptions:
- -----------
<S> <C>
Age at Early Retirement 60
Normal Retirement Age 62
Projected Benefit Account Value at Age 62 $100,000
Actual Benefit Account Value at Age 60 $20,000
Distribution Period Elected for Benefit Account (Schedule F) 10 yrs.
Projected Index Benefit at Age 62 $50,000
Projected Index Benefit at Age 60 $25,000
Applicable Percentage at Age 60 75%
</TABLE>
First Year Benefit Calculation: Age 60
<TABLE>
<S> <C>
1) Benefit Account [($20,000 10) x .75] $ 1,500
2) Index Benefit ($25,000 x .75) $18,750
-------
Total First Year Benefit $20,250
=======
</TABLE>
3.2. Payments Upon Retirement. If the Employee shall remain in the
------------------------
continuous employment of the Employer until attaining sixty-two (62) years of
age, the Employee shall be entitled to be paid the Applicable Percentage of the
Employee Benefits specified in Schedule "B", payable in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Employee Retires (or on such later date as may
be mutually agreed upon by the Employee and the Employer in advance of said
Retirement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
3.3. Payments in the Event of Death After Retirement. The Employer
-----------------------------------------------
agrees that if the Employee Retires, but shall die before receiving all of the
Employee Benefits, the Employer will make such payments to which the Employee
may be entitled, to the Employee's designated beneficiary in lump sum. If a
valid Beneficiary Designation is not in effect, then the remaining amounts due
to the Employee under the terms of this Agreement shall be paid to the
Employee's Surviving Spouse. If the Employee leaves no Surviving Spouse, the
remaining amounts
-7-
<PAGE>
due to the Employee under the terms of this Agreement shall be paid to the duly
qualified personal representative, executor or administrator of the Employee's
estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
--------------------------------------------------------------------
4.1. Payments in the Event of Death Prior to Retirement. If the
--------------------------------------------------
Employee dies while actively employed by the Employer at any time after the
Effective Date of this Agreement, but prior to Retirement, the Employer agrees
to pay the Employee Benefits to which the Employee is then entitled to the
Employee's designated beneficiary in lump sum. If a valid Beneficiary
Designation is not in effect, then the remaining amounts due to the Employee
under the terms of this Agreement shall be paid to the Employee's Surviving
Spouse. If the Employee leaves no Surviving Spouse, the remaining amounts due to
the Employee under the terms of this Agreement shall be paid to the duly
qualified personal representative, executor or administrator of the Employee's
estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the
-------------------------------------------------------
event the Employee becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Employee shall be entitled to be paid the
Applicable Percentage of the Employee Benefits specified in Schedule "B",
payable in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Employee
becomes Disabled (or on such later date as may be mutually agreed upon by the
Employee and the Employer not less than fifteen (15) days prior to such
commencement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
5. Payments in the Event Employment Is Terminated Prior to Retirement. As
------------------------------------------------------------------
indicated in subparagraph 2.1 above, the Employer reserves the right to
terminate the Employee's employment, with or without cause but subject to any
written employment agreement which may then exist, at any time prior to the
Employee's Retirement. In the event that the employment of the Employee shall be
terminated, other than by reason of death, Disability or Retirement, prior to
the Employee's attaining sixty-two (62) years of age, then this Agreement shall
terminate on the date of such termination of employment; provided, however, that
the Employee shall be entitled to the following benefits as may be applicable
depending upon the circumstances surrounding the Employee's termination:
5.1. Termination Without Cause. If the Employee's employment is
-------------------------
terminated by the Employer without cause, and such termination is not subject to
the provisions of subparagraph 5.4 below, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee Benefits specified in Schedule
"B", payable in substantially equal monthly installments on the first day of
each month, beginning with the month following the month in which the Employee
attains sixty-two (62) years of age (or on such later date as may be mutually
agreed upon by the Employee and the Employer not less than fifteen (15) days
prior to such commencement date) (i) for the period designated in Schedule "F",
in the case of the balance in the Benefit Account and (ii) until the Employee's
death, in the case of the Index Benefit defined in Schedule "B".
-8-
<PAGE>
5.2. Voluntary Termination by the Employee. If the Employee's
-------------------------------------
employment is terminated by voluntary resignation, and such resignation is not
subject to the provisions of subparagraph 5.4 below, the Employee shall be
entitled to be paid the following benefits:
(a) If the Applicable Percentage at the date of termination is one
hundred percent (100%), the Employee shall be paid (i) the Employee Benefits
specified in Schedule "B", payable in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Employee attains sixty-two (62) years of age (or on such later date as
may be mutually agreed upon by the Employee and the Employer not less than
fifteen (15) days prior to such commencement date) (A) for the period designated
in Schedule "F", in the case of the balance in the Benefit Account and (B) until
the Employee's death, in the case of the Index Benefit defined in Schedule "B.
(b) If the Applicable Percentage at the date of termination is less
than one hundred percent (100%), the Employee shall be paid the Applicable
Percentage of the Employee Benefits specified in Schedule "B", based on a ten
(10) year (120 month) payout of the Benefit Account balance at termination
notwithstanding the Employee's election of a different payout period under
Schedule "F", but not more than sixty percent (60%) of the Employee's base
salary (i.e., exclusive of any bonuses, incentive payments or other employee
benefits to which the Employee would otherwise be entitled) at the date of
termination. Notwithstanding the foregoing, the Employee shall be paid not less
than seventy percent (70%) of the Employee Benefits specified in Schedule "B",
based on a ten (10) year (120 month) payout of the Benefit Account balance at
termination notwithstanding the Employee's election of a different payout period
under Schedule "F". Such benefit shall be payable in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Employee attains sixty-two (62) years of age (or on such
later date as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) (A) for the period
of one hundred twenty (120) months, in the case of the balance in the Benefit
Account and (B) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B" (subject to adjustment as described above).
5.3. Termination for Cause. If the Employee suffers a
-----------------------
"Termination for Cause", as defined in subparagraph 1.15 of this Agreement, the
Employee shall forfeit any and all rights and benefits the Employee may have
under the terms of this Agreement and shall have no right to be paid any of the
amounts which would otherwise be due or paid to the Employee by the Employer
pursuant to the terms of this Agreement.
5.4. Termination by the Employer on Account of or After a Change in
--------------------------------------------------------------
Control. In the event the Employee's employment with the Employer is terminated
- -------
by the Employer "in connection with a Change in Control" as described in
subparagraph 1.2(a) and as defined in subparagraph 1.4 above, the Employee shall
be entitled to be paid the Applicable Percentage of the Employee Benefits
specified in Schedule "B", in substantially equal monthly installments on the
first day of each month, beginning with the month following the month in which
the Employee attains fifty-nine and one-half (59.5) years of age or any month
thereafter, as requested
-9-
<PAGE>
in writing by the Employee and delivered to the Employer or its successor thirty
(30) days prior to the commencement of installment payments; provided, however,
that in the event the Employee does not request a commencement date as
specified, such installments shall be paid on the first day of each month,
beginning with the month following the month in which the Employee attains
sixty-two (62) years of age. The installments shall be payable (i) for the
period designated in Schedule "F" in the case of the balance in the Benefit
Account and (ii) until the Employee's death in the case of the Index Benefit
defined in Schedule "B".
5.5. Payments in the Event of Death Following Termination. If the
----------------------------------------------------
Employee shall die prior to receiving all of the applicable benefits described
in this Paragraph 5 to which the Employee is entitled, then the Employer will
make such payments to the Employee's designated beneficiary. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Employee shall be paid to the Employee's Surviving Spouse. If the Employee
leaves no Surviving Spouse, the remaining amounts due to the Employee shall be
paid to the duly qualified personal representative, executor or administrator of
the Employee's estate.
6. Section 280G Benefits Adjustment. If all or any portion of the amounts
--------------------------------
payable to the Employee under this Agreement, either alone or together with
other payments which the Employee has the right to receive from the Employer,
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the
excise tax imposed by Section 4999 of the Code (or similar tax and/or
assessment), the Employer (and its successor) shall increase the amounts payable
under this Agreement to the extent necessary to afford the Employee
substantially the same economic benefit under this Agreement as the Employee
would have received had no such excise tax been imposed on the payments due the
Employee under this Agreement. The determination of the amount of any such
excise taxes shall be made initially by the independent accounting firm employed
by the Employer immediately prior to the occurrence of the event constituting a
Change in Control.
If, at a later date, it is determined (pursuant to final regulations or
published rulings of the Internal Revenue Service, final judgment of a court of
competent jurisdiction, or otherwise) that the amount of excise taxes payable to
the Employee is greater than the amount initially so determined, then the
Employer (or its successor) shall pay to the Employee an amount equal to the sum
of (i) such additional excise taxes, and (ii) any interest, fines and penalties
resulting from such underpayment, plus (iii) an amount necessary to reimburse
the Employee substantially for any income, excise or other taxes payable by the
Employee with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii).
7. Right To Determine Funding Methods. The Employer reserves the right to
----------------------------------
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Employee, the Employee's spouse or the Employee's beneficiaries
under the terms of this Agreement. In the event that the Employer elects to fund
this Agreement, in whole or in part, through the use of life insurance or
annuities, or both, the Employer shall determine the ownership and beneficial
interests of any such policy of life insurance or annuity. The Employer further
reserves the right, in its sole and absolute
-10-
<PAGE>
discretion, to terminate any such policy, and any other device used to fund its
obligations under this Agreement, at any time, in whole or in part. Consistent
with Paragraph 9 below, neither the Employee, the Employee's spouse nor the
Employee's beneficiaries shall have any right, title or interest in or to any
funding source or amount utilized by the Employer pursuant to this Agreement,
and any such funding source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Employee agrees to execute such documents and
undergo such medical examinations or tests which the Employer may request and
which may be reasonably necessary to facilitate any funding for this Agreement
including, without limitation, the Employer's acquisition of any policy of
insurance or annuity. Furthermore, a refusal by the Employee to consent to,
participate in and undergo any such medical examinations or tests shall result
in the immediate termination of this Agreement and the immediate forfeiture by
the Employee, the Employee's spouse and the Employee's beneficiaries of any and
all rights to payment hereunder.
8. Claims Procedure. The Employer shall, but only to the extent necessary
----------------
to comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, the Employer shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Employer denying a claim by the Employee, the Employee's spouse, or the
Employee's beneficiary for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Employee, the Employee's spouse or the Employee's beneficiary, as the case may
be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Employer shall provide the Employee, the Employee's
spouse or the Employee's beneficiary with a reasonable opportunity for a full
and fair review of the decision denying such claim.
9. Status Under Secular Trust and as an Unsecured General Creditor.
---------------------------------------------------------------
(a) The Employee has established a secular trust, identified as the
David R. Hood Secular Trust, a copy of which is attached hereto as Schedule "G"
(the "Trust"). The Employer shall make contributions to the Trust as specified
in Schedule "C" to this Agreement. The contributions shall be deposited into an
account which constitutes the Trust Fund as defined in the Trust.
Notwithstanding anything contained herein to the contrary, the Trust Fund shall
not be subject to the claims of the Employer's general creditors except as may
be expressly stated in the Trust. In the event of a conflict between the
provisions of the Trust and this Agreement, the provisions of the Trust shall
control.
(b) Except as provided in subparagraph 9(a) above: (i) neither the
Employee, the Employee's spouse or the Employee's designated beneficiaries shall
have any legal or equitable rights, interests or claims in or to any specific
property or assets of the Employer as a result of this Agreement; (ii) none of
the Employer's assets shall be held in or under any trust for the benefit of the
Employee, the Employee's spouse or the Employee's designated beneficiaries or
held in any way as security for the fulfillment of the obligations of the
Employer under this Agreement; (iii) all of the Employer's assets shall be and
remain the general unpledged and unrestricted assets of the
-11-
<PAGE>
Employer; (iv) the Employer's obligation under this Agreement shall be that of
an unfunded and unsecured promise by the Employer to pay money in the future;
and (v) the Employee, the Employee's spouse and the Employee's designated
beneficiaries shall be unsecured general creditors with respect to any benefits
which may be payable under the terms of this Agreement.
(c) Notwithstanding subparagraphs 9(b)(i) through 9(b)(v) above, the
Employer and the Employee acknowledge and agree that, in the event of a Change
in Control and at the written request of the Employee, the Employer shall
establish, not later than the effective date of the Change in Control, a Rabbi
Trust or multiple Rabbi Trusts upon such terms and conditions as the Employer in
its sole discretion deems appropriate and in compliance with applicable
provisions of the Code in order to permit the Employer to make contributions
and/or transfer assets to the Rabbi Trust or Rabbi Trusts to discharge its
obligations pursuant to this Agreement. The principal of the Rabbi Trust or
Rabbi Trusts and any earnings thereon shall be held separate and apart from
other funds of the Employer to be used exclusively for discharge of the
Employer's obligations pursuant to this Agreement and shall continue to be
subject to the claims of the Employer's general creditors until paid to the
Employee or its beneficiaries in such manner and at such times as specified in
this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the
----------------------------------------
other provisions of this Agreement, the Board of Directors of the Employer may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Employee (or the Employee's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Employer's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors and offered to the Employee [or Employee's spouse
or designated beneficiaries] on a "take it or leave it basis").
-12-
<PAGE>
11. Miscellaneous.
-------------
11.1. Opportunity To Consult With Independent Advisors. The Employee
------------------------------------------------
acknowledges that the Employee has been afforded the opportunity to consult with
independent advisors of his or her choosing including, without limitation,
accountants or tax advisors and counsel regarding both the benefits granted to
the Employee under the terms of this Agreement and the (i) terms and conditions
which may affect the Employee's right to these benefits and (ii) personal tax
effects of such benefits including, without limitation, the effects of any
federal or state taxes, Section 280G of the Code, and any other taxes, costs,
expenses or liabilities whatsoever related to such benefits, which in any of the
foregoing instances the Employee acknowledges and agrees shall be the sole
responsibility of the Employee notwithstanding any other term or provision of
this Agreement. The Employee further acknowledges and agrees that the Employer
shall have no liability whatsoever related to any such personal tax effects or
other personal costs, expenses, or liabilities applicable to the Employee and
further specifically waives any right for the Employee and his or her heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Employer related to the matters described
above in this subparagraph 11.1. The Employee further acknowledges and agrees
that the Employee has read, understands and consents to all of the terms and
conditions of this Agreement, and that the Employee enters into this Agreement
with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters
-----------------------
in question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Employer in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
in San Francisco, California. In the event JAMS is unable or unwilling to
conduct the arbitration provided for under the terms of this Paragraph, or has
discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), in San Francisco, California, shall conduct the binding
arbitration referred to in this Paragraph. Notice of the demand for arbitration
shall be filed in writing with the other party to this Agreement and with JAMS
(or AAA, if necessary). In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statute of limitations. The arbitration shall be subject to such rules of
procedure used or established by JAMS, or if there are none, the rules of
procedure used or established by AAA. Any award rendered by JAMS or AAA shall be
final and binding upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and assigns, and may be
entered in any court having jurisdiction thereof. The obligation of the parties
to arbitrate pursuant to this clause shall be specifically enforceable in
accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Jose, California, unless otherwise agreed to
by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation
---------------
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement
-13-
<PAGE>
or the breach hereof, or the interpretation hereof, the prevailing party shall
be entitled to recover from the non-prevailing party reasonable expenses,
attorneys' fees and costs incurred in connection therewith or in the enforcement
or collection of any judgment or award rendered therein. The "prevailing party"
means the party determined by the arbitrator(s) or court, as the case may be, to
have most nearly prevailed, even if such party did not prevail in all matters,
not necessarily the one in whose favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Employee
------
or the Employer under this Agreement shall be deemed to have been duly given, if
by personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Cupertino National Bank
2860 West Bayshore Road
Palo Alto, California 94303
Shawn E. Saunders
Chief Financial Officer
If to the Employee: David R. Hood
[omitted]
11.5. Assignment. Neither the Employee, the Employee's spouse, nor any
----------
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Employee, the Employee's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Employer. The Employer's consent, if any, to one or more
assignments or transfers shall not obligate the Employer to consent to or be
construed as the Employer"s consent to any other or subsequent assignment or
transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of the Employee and the Employer and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
-14-
<PAGE>
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used in this Agreement
shall be deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7. Non-waiver. The failure of either party to enforce at any time or
----------
for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or
------------------
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement, including the schedules and
----------------
exhibits attached hereto and incorporated herein by this reference, contains all
of the covenants and agreement, and supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the subject
matter of this Agreement. Each party to this Agreement acknowledges that no
other representations, inducements, promises, or agreements, oral or otherwise,
have been made by any party, or anyone acting on behalf of any party, which are
not set forth herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be
-------------
effective only if it is in writing and signed by each party or such party's
authorized representative.
11.11. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement
-----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
11.13. Governing Law. The laws of the State of California, other than
-------------
those laws denominated choice of law rules, and, where applicable, the rules and
regulations of the California Commissioner of Financial Institutions, the
Federal Deposit Insurance Corporation, the Federal Reserve Board of Governors
and the Office of the Comptroller of the Currency, shall govern the validity,
interpretation, construction and effect of this Agreement.
-15-
<PAGE>
11.14. Waiver of Prior Plan Benefit. To the extent that the Employee is
----------------------------
a participant in any other supplemental benefit plan provided by the Employer
which affords the Employee benefits in the event of the Employee's retirement or
death or a change in control of the Employer, it is an express condition
precedent to the effectiveness of this Agreement that the Employee execute and
deliver the Waiver of Prior Plan Benefit attached as Schedule "D" to this
Agreement.
IN WITNESS WHEREOF, the Employer and the Employee have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER THE EMPLOYEE
CUPERTINO NATIONAL BANK,
a California corporation
By: /s/ Shawn E. Saunders /s/ David R. Hood
--------------------- -----------------
Shawn E. Saunders David R. Hood
Senior Vice President and
Chief Financial Officer
-16-
<PAGE>
SCHEDULE A
----------
Applicable
Calendar Year Percentage
12/31/97 70%
12/31/98 80%
12/31/99 90%
12/31/00 100%
<PAGE>
SCHEDULE B
----------
INDEX EMPLOYEE BENEFITS
-----------------------
1. Index Employee Benefits Determination. The Index Employee Benefits consist of
-------------------------------------
(i) accruals to the Employee"s Benefit Account (as described in subparagraph (a)
below) during the Employee"s employment by the Employer and (ii) the Index
Benefit (as described in subparagraph (b) below) after the Employee"s employment
by the Employer terminates. The Index Employee Benefits shall be determined
based upon the following:
a. Benefit Account: A Benefit Account shall be established as a liability
---------------
reserve account on the books of the Employer for the benefit of the Employee.
Prior to the date on which the Employee becomes eligible to receive payments
under the Plan, such Benefit Account shall be increased (or decreased) each Plan
Year by an amount equal to the annual earnings (or loss) for that Plan Year
determined by the Index (described in subparagraph c below), less the
Opportunity Cost (described in subparagraph d below) for that Plan Year.
b. Index Benefit: After the date on which the Employee becomes eligible to
-------------
receive payments under the Plan, the Index Benefit for the Employee for any Plan
Year shall be determined by subtracting the Opportunity Cost for that Plan Year
from the annual earnings (if any) for that Plan year determined by the Index.
c. Index: The Index for any Plan Year shall be the aggregate annual
-----
after-tax income from the life insurance contracts described hereinafter as
defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such
insurance contracts were purchased on the Effective Date.
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $390,000
-------------
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $390,000
-------------
If such contracts of life insurance are actually purchased by the Employer, then
the actual policies as of the dates purchased shall be used in calculations to
determine the Index and Opportunity Cost. If such contracts of life insurance
are not purchased or are subsequently surrendered or lapsed, then the Employer
shall receive and use annual policy illustrations that assume the above
described policies were purchased from the above named insurance company(ies) on
the Effective Date to calculate the amount of the Index and Opportunity Cost.
d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be
----------------
calculated by multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount of any Index
Benefits (described at subparagraph b above), and (iii)
<PAGE>
the amount of all previous years after-tax Opportunity Costs; by (b) the average
annualized after-tax cost of funds calculated using a one-year U.S. Treasury
Bill as published in the Wall Street Journal. The applicable tax rate used to
calculate the Opportunity Cost shall be the Employer's marginal tax rate until
the Employee's Retirement, or other termination of service (including a Change
in Control). Thereafter, the Opportunity Cost shall be calculated with the
assumption of a marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Employer is higher or
lower.
2. Employee Benefits Payments. The Employee shall be entitled to payment of the
--------------------------
Index Employee Benefits on the terms as specified in the Agreement.
EXAMPLE
INDEX EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
[n] [A] [B] [C] [D]
End of Year Cash Surrender Value of Life Index Opportunity Cost Annual Benefit
- ----------- -------------------------------- ----- ---------------- --------------
Insurance Policy [Annual A/0/ = premium B-C
---------------- Policy
Income] A/0/+C/n-1/x.05x
A/n/-A/n-1/ (1-42%)
<S> <C> <C> <C> <C>
0 $1, 000,000 -- -- --
1 $1,050,000 $50,000 $29,000 $21,000
2 $1,102,500 $52,500 $29,841 $22,659
3 $1,157,625 $55,125 $30,706 $24,419
.
.
.
</TABLE>
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
-2-
<PAGE>
SCHEDULE C
----------
SUPPLEMENTAL BENEFITS
---------------------
In addition to the Employee Benefits specified elsewhere in this Agreement,
the Employee shall be entitled to receive the following supplemental benefits
(the "Supplemental Benefits"):
Secular Trust Defined Benefit. Provided that the Employee has not exercised
the Employee's withdrawal rights under the Trust, the Employer shall make
contributions to the Trust, pursuant to paragraph 9 of the Agreement, on a
pre-tax basis in the amounts shown in column (B) of the following table. Such
contributions shall be made from time to time in the discretion of the Employer
provided that the total amount shown in column (B) below has been contributed to
the Trust by the end of the Plan Year shown in column (A) below.
(A) (B)
1998 $190,832
1999 $46,490
2000 $53,883
2001 $61,935
2002 $70,700
2003 $80,232
2004 $90,594
2005 $101,849
2006 $114,069
The aggregate amount of the foregoing contributions shall be subject to
adjustment, from time to time, to ensure that the Trust is adequately funded to
afford the Employee with a projected defined benefit equal to the Applicable
Percentage of Thirty Six Thousand Nine Hundred Ninety Dollars ($36,990) per
annum for twenty (20) years commencing the year in which the Employee attains
age sixty-two (62). In the event that the contributions made by the Employer to
the Trust as provided above are determined to be insufficient to fund the
foregoing Supplemental Benefits, the Employer shall make such further
contributions to the Trust as may be necessary to fund fully such Supplemental
Benefits. Such determination and adjusting contributions, if required, may be
made from time to time at the discretion of the Employer, but in all events not
later than the date on which the Employee Retires or otherwise becomes eligible
to begin receiving the Employee Benefits specified in Schedule "B". Provided
that the foregoing final adjusting contribution, if required, has
<PAGE>
been made, the Employer shall have no obligation to make further contributions
to the Trust once the Employee Retires or otherwise becomes eligible to begin
receiving the Employee Benefits specified in Schedule "B".
Notwithstanding anything herein or in the Agreement to the contrary, the
obligation of the Employer to make the contributions to the Trust as specified
above shall terminate automatically upon the forfeiture or other termination of
the Employee's right to receive the Employee Benefits specified in Schedule "B",
as provided in this Agreement.
Defined Benefit Payments. The Employee shall receive the Applicable
Percentage of the sum of $68,500 per annum, payable in substantially equal
monthly installments commencing on the first day of the calendar month
immediately following the month in which the Employee attains age sixty-two (62)
and continuing through and including the month in which the Employee attains age
sixty-seven (67).
If the Employee shall die before receiving all of the Supplemental Benefits
described in this Schedule "C", the Employer will make such payments to which
the Employee may be entitled, to the Employee's designated beneficiary in lump
sum. If a valid Beneficiary Designation is not in effect, then the remaining
amounts due to the Employee under the terms of this Schedule "C" shall be paid
to the Employee's Surviving Spouse. If the Employee leaves no Surviving Spouse,
the remaining amounts due to the Employee under the terms of this Schedule "C"
shall be paid to the duly qualified personal representative, executor or
administrator of the Employee's estate.
In the event that the Employee has not become entitled to receive payment
of the Employee Benefits described in Schedule "B" on or before the date on
which the Supplemental Benefits described in this Schedule "C" would otherwise
commence (other than as a result of an agreement between the Employer and the
Employee to defer receipt of such payments), then the Employee shall forfeit
each monthly installment of payments otherwise payable under this Schedule "C"
for each month until the Employee becomes entitled to receive payment of the
Employee Benefits specified in Schedule "B".
Notwithstanding anything herein or in the Agreement to the contrary, the
Supplemental Benefits set forth in this Schedule "C" shall terminate
automatically upon the forfeiture or other termination of the Employee's right
to receive the Employee Benefits specified in Schedule "B", as provided in this
Agreement.
<PAGE>
SCHEDULE D
----------
WAIVER OF PRIOR PLAN BENEFITS
-----------------------------
In consideration for the Employee Benefits made available to the Employee
by this Employee Supplemental Compensation Benefits Agreement (the "Agreement"),
the Employee acknowledges and agrees as follows:
(a) The Employee is a party to that certain Cupertino National Bank and
Trust Employment, Severance and Retirement Benefits Agreement made with the
Employer or its predecessor dated April 14, 1995. Such Agreement, and all
amendments, modifications, representations, understandings and interpretations
thereof, including, without limitation, the Memorandum of Understanding, dated
on or about November 15, 1996, is referred to herein as the "Prior Plan
Agreement". This Agreement and the Employee Benefits hereunder are provided as a
substitute for the Prior Plan Agreement and the benefits provided thereunder.
(b) The Prior Plan Agreement and the benefits thereunder are hereby
terminated effective as of the date of this Agreement.
(c) The Employee hereby waives and relinquishes for himself or herself,
and his or her heirs, beneficiaries, legal representatives, agents, successors
and assigns, any and all right, entitlement and interest that the Employee has
or may have pursuant to the Prior Plan Agreement and the benefits thereunder,
and accepts the Employee Benefits afforded by this Agreement in full and
complete substitution for the benefits otherwise provided by the Prior Plan
Agreement.
(d) Without limiting the scope and effect of subparagraph 11.1 of the
Agreement, the Employee (i) has had an opportunity to consult with advisors of
the Employee's own choice in determining to enter into this Agreement and this
Waiver, (ii) understands that the effect of this Waiver is to terminate, waive
and relinquish forever all rights, entitlements and interests that the Employee
has or may have under the Prior Plan Agreement and the benefits thereunder as a
condition to receiving the Employee Benefits under this Agreement; and (iii) the
Employee is entering into this Agreement and this Waiver voluntarily and with
full appreciation of the effect of doing so.
Dated: _____________________________, 1998 ______________________________
David R. Hood
I consent to and agree to be bound by the foregoing Waiver:
________________________________________
Marleen A. Hood,Spouse of David R. Hood
<PAGE>
SCHEDULE E
----------
BENEFICIARY DESIGNATION
-----------------------
To the Administrator of the Greater Bay Bancorp Employee Supplemental
Compensation Benefits Agreement:
Pursuant to the Provisions of my Employee Supplemental Compensation
Benefits Agreement with Cupertino National Bank, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
Primary Beneficiary:
- -------------------
________________________ _________________________ ____________________
Name Address Relationship
Secondary (Contingent) Beneficiary:
- ----------------------------------
________________________ _________________________ ____________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Employee Supplemental Compensation Benefits
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit payable according to the terms of my
Employee Supplemental Compensation Benefits Agreement shall be payable to the
personal representatives of the estate of said beneficiary who survived me but
died prior to receiving the total benefit provided by my Employee Supplemental
Compensation Benefits Agreement.
Dated: ____________________________, 1998 ______________________________
David R. Hood
<PAGE>
CONSENT OF THE EMPLOYEE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
- ------------------------------------
I, Marleen A. Hood, being the spouse of David R. Hood, after being afforded
the opportunity to consult with independent counsel of my choosing, do hereby
acknowledge that I have read, agree and consent to the foregoing Beneficiary
Designation which relates to the Employee Supplemental Compensation Benefits
Agreement entered into by my spouse effective as of January 1, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Employee
Supplemental Compensation Benefits Agreement and in which I may have a marital
property interest.
Dated: _____________________________, 1998
__________________________________
Marleen A. Hood
- ---------------
<PAGE>
SCHEDULE F
----------
DISTRIBUTION ELECTION
---------------------
Pursuant to the Provisions of my Employee Supplemental Compensation Benefits
Agreement with Cupertino National Bank, I hereby elect to have any distribution
of the balance in my Benefit Account paid to me in installments as designated
below:
____ sixty (60) monthly installments with the amount of each
installment determined as of each installment date by dividing
the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
____ one hundred twenty (120) monthly installments with the amount of
each installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
____ one hundred eighty (180) monthly installments with the amount of
each installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the number of
installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit
Account.
Dated: _____________________________, 1998
Signed: ______________________________
David R. Hood
<PAGE>
SCHEDULE G
----------
SECULAR TRUST
-------------
[to be finalized]
<PAGE>
EXHIBIT 10.5
EMPLOYEE SUPPLEMENTAL COMPENSATION BENEFITS AGREEMENT
-----------------------------------------------------
This Employee Supplemental Compensation Benefits Agreement (the
"Agreement") is made and entered into effective as of April 6, 1998, by and
between Greater Bay Bancorp, a California banking corporation (the "Employer"),
and Gregg A. Johnson, an individual residing in the State of California (the
"Employee").
R E C I T A L S
---------------
WHEREAS, the Employee is an employee of the Employer, and, since April 6,
1998, has become eligible to participate in the Employee Supplemental
Compensation Benefits Plan represented by this Agreement (the "Plan");
WHEREAS, the Employer desires to establish a compensation benefits program
as a fringe benefit for certain officers of the Employer in order to attract and
retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Employee's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Employee with certain benefits, on the terms and conditions set
forth herein, in order to reasonably induce the Employee to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer;
WHEREAS, it is the intention of the parties that the Employer's obligations
under this Agreement shall be that of an unfunded and unsecured promise to
provide the benefits to the Employee set forth hereinafter and except for the
contributions, if any, to a secular trust to be established by the Employee as
grantor, the Employee and the Employee's beneficiaries shall be unsecured
general creditors with respect to any benefits provided under the terms of this
Agreement; and
WHEREAS, the Employee and the Employer wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Employee, or to the Employee's spouse or the Employee's
designated beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Employee in the future, as well as the mutual promises and covenants contained
herein, the Employee and the Employer agree as follows:
<PAGE>
A G R E E M E N T
-----------------
1. Terms and Definitions.
---------------------
1.1. Administrator. The Employer shall be the "Administrator" and,
-------------
solely for the purposes of ERISA, as defined in subparagraph 1.11 below, the
"fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall mean
---------------------
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Employee's commencement of employment with and providing personal services to
the Employer or, if later, the date on which the Employee became eligible to
participate in the Plan represented by this Agreement, and ending on the date
payments are to first begin under the terms of this Agreement. Notwithstanding
the foregoing or the percentages set forth on Schedule "A", but subject to all
other terms and conditions set forth herein, the "Applicable Percentage" shall
be:
(a) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
termination of the Employee's employment by the Employer if such termination
is in connection with a "Change in Control" as defined in subparagraph 1.4
below. A termination shall be deemed to be in connection with a Change in
Control if, within two (2) years following the occurrence of a Change in
Control: (i) the Employee's employment with the Employer is terminated by the
Employer other than a Termination for Cause; or (ii) by reason of the Employer's
actions any adverse and material change occurs in the scope of the Employee's
position, responsibilities, duties, salary, benefits or location of employment;
or (iii) the Employer causes an event to occur which reasonably constitutes or
results in a demotion, a significant diminution of responsibilities or
authority, or a constructive termination (by forcing a resignation or otherwise)
of the Employee's employment;
(b) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
occurrence of (i) the Employee's death prior to the termination of the
Employee's employment by the Employer, or (ii) the Employee's Disability (as
defined in subparagraph 1.6 below) other than a Disability that occurs after the
termination of the Employee's employment by the Employer; and
(c) notwithstanding subclauses (a) and (b) of this subparagraph
1.2, zero percent (0%) in the event the Employee takes any intentional action
which prevents the Employer from collecting the proceeds of any life insurance
policy which the Employer may happen to own at the time of the Employee's death
and of which the Employer is the designated beneficiary (the "Employer Cost
Recovery Policy"). Furthermore, notwithstanding the foregoing, or anything
contained in this Agreement to the contrary, in the event the Employee takes any
intentional action which prevents the Employer from collecting the proceeds of
any Employer Cost Recovery Policy, then: (1) the Employee, the Employee's
estate, designated beneficiary or Surviving Spouse shall no
-2-
<PAGE>
longer be entitled to receive any of the amounts payable under the terms of this
Agreement, and (2) the Employer shall have the right to recover from Employee's
estate and/or Surviving Spouse all of the amounts paid to the Employee's estate
or Surviving Spouse, as the case may be (with respect to amounts paid prior to
the Employee's death or paid to the Employee's estate or Surviving Spouse) or
from the Employee'L/F designated beneficiary (with respect to amounts paid to
the designated beneficiary) pursuant to the terms of this Agreement prior to and
after Employee's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary"
-----------
shall mean the person or persons whom the Employee shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "E," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof and is
completed and signed by the Employee and received by the Administrator prior to
the Employee's death.
1.4. Change in Control. The term "Change in Control" shall mean the
-----------------
first to occur of any of the following events with respect to the Employer (with
the term "Employer" being defined for purposes of determining whether a "Change
in Control" has occurred to include any parent bank holding company which owns
100% of the Employer's outstanding voting capital stock):
(a) Any "person" (as such term is used in sections 13 and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
becomes the beneficial owner (as that term is used in section 13(d) of the
Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of
the Employer's capital stock entitled to vote in the election of directors,
other than a group of two or more persons not (i) acting in concert for the
purpose of acquiring, holding or disposing of such stock or (ii) otherwise
required to file any form or report with any governmental agency or regulatory
authority having jurisdiction over the Employer which requires the reporting of
any change in control;
(b) During any period of not more than two (2) consecutive years,
not including any period prior to the adoption of the Plan represented by this
Agreement, individuals who, at the beginning of such period, constitute the
Board of Directors of the Employer, and any new director (other than a director
designated by a person who has entered into an agreement with the Employer to
effect a transaction described in clause (a), (c), (d) or (e) of this
subparagraph 1.4) whose appointment to the Board of Directors or nomination for
election to the Board of Directors was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office, either were
directors at the beginning of such period or whose appointment or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof;
(c) The effective date of any consolidation or merger of the
Employer (after all requisite shareholder, applicable regulatory and other
approvals and consents have been obtained), other than a consolidation or merger
of the Employer in which the holders of the voting capital stock of the Employer
immediately prior to the consolidation or merger hold more than fifty
-3-
<PAGE>
percent (50%) of the voting capital stock of the surviving entity immediately
after the consolidation or merger;
(d) The shareholders of the Employer approve any plan or proposal
for the liquidation or dissolution of the Employer; or
(e) The shareholders of the Employer approve the sale or transfer
of substantially all of the Employer'L/F assets to parties that are not within a
"controlled group of corporations" (as that term is defined in section 1563 of
the Code) in which the Employer is a member.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986,
--------
as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have
-------------------
the same meaning given such terms in any policy of disability insurance
maintained by the Employer for the benefit of employees including the Employee.
In the absence of such a policy which extends coverage to the Employee in the
event of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of the
Employee'L/F duties to the Employer for at least ninety (90) days.
1.7. Early Retirement Date. The term "Early Retirement Date" shall mean
---------------------
the Retirement, as defined below, of the Employee on a date which occurs prior
to the Employee attaining sixty-two (62) years of age, as defined below, but
after the Employee has attained fifty-nine and one-half (59.5) years of age.
1.8. Effective Date. The term "Effective Date" shall mean the date first
--------------
written above.
1.9. Employee Benefits. Except as otherwise stated in this Agreement,
-----------------
the term "Employee Benefits" shall mean the Index Employee Benefits, if any,
described in and determined in accordance with Schedule "B" and the supplemental
benefits described in and determined in accordance with Schedule "C", and
reduced or adjusted to the extent: (i) required under the other provisions of
this Agreement; (ii) required by reason of the lawful order of any regulatory
agency or body having jurisdiction over the Employer; or (iii) required in order
for the Employer to properly comply with any and all applicable state and
federal laws, including, but not limited to, income, employment and disability
income tax laws (e.g., FICA, FUTA, SDI).
-4-
<PAGE>
1.10. Employer. Except as otherwise set forth in this Agreement, the
--------
term "Employer" shall mean Greater Bay Bancorp; provided, however, that for
purposes of subparagraph 1.15 (definition of Termination for Cause) and
Paragraph 5 (including its subparagraphs, regarding termination of employment),
the term "Employer" shall mean Greater Bay Bancorp and its subsidiaries and
affiliated entities.
1.11. ERISA. The term "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
1.12. Plan Year. The term "Plan Year" shall mean the Employer's fiscal
---------
year.
1.13. Retirement. The term "Retirement" or "Retires" shall refer to the
----------
date which the Employee acknowledges in writing to the Employer to be the last
day the Employee will provide any significant personal services, whether as an
employee or independent consultant or contractor, to the Employer or to, for, or
on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal services"
shall mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period for compensation excluding
services, if any, rendered by the Employee after Retirement pursuant to the
terms of a consulting agreement described in Schedule "C", if any.
1.14. Surviving Spouse. The term "Surviving Spouse" shall mean the
----------------
person, if any, who shall be legally married to the Employee on the date of the
Employee's death.
1.15. Termination for Cause. The term "Termination for Cause" shall mean
---------------------
termination of the employment of the Employee by reason of any of the following:
(a) The Employee's deliberate violation of (i) any state or federal
banking or securities laws, or of the Bylaws, rules, policies or resolutions of
the Employer, or (ii) of the rules or regulations of the California Commissioner
of Financial Institutions, the Federal Deposit Insurance Corporation, the
Federal Reserve Board of Governors, the Office of the Comptroller of the
Currency or any other regulatory agency or governmental authority having
jurisdiction over the Employer, which has a material adverse effect upon the
Employer; or
(b) The Employee's conviction of (i) any felony or (ii) a crime
involving moral turpitude or a fraudulent or dishonest act which, in each case,
has a material adverse effect on the Employer.
2. Scope, Purpose and Effect.
-------------------------
2.1. Contract of Employment. Although this Agreement is intended to
----------------------
provide the Employee with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Employee and the Employer nor shall any provision of this
Agreement restrict or expand the right of the Employer to terminate
-5-
<PAGE>
the Employee's employment. This Agreement shall have no impact or effect upon
any separate written Employment Agreement which the Employee may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart from, and shall have no effect upon, or be
affected by, the terms and provisions of said Employment Agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted
--------------
by the Employer as a fringe benefit to the Employee and are not a part of any
salary reduction plan or any arrangement deferring a bonus or a salary increase.
The Employee has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
-----------------------------------------------------------------
3.1. Payments Upon Early Retirement. The Employee shall have the right
------------------------------
to Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Employee elects to Retire on a date
which constitutes an Early Retirement Date, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee Benefits specified in Schedule
"B", payable in substantially equal monthly installments on the first day of
each month, beginning with the month following the month in which the Early
Retirement Date occurs (or on such later date as may be mutually agreed upon by
the Employee and the Employer in advance of such Early Retirement Date) (i) for
the period designated in Schedule "F", in the case of the balance in the Benefit
Account and (ii) until the Employee'L/F death, in the case of the Index Benefit
defined in Schedule "B".
-6-
<PAGE>
EXAMPLE
Payments Upon Early Retirement
<TABLE>
<CAPTION>
Assumptions:
- -----------
<S> <C>
Age at Early Retirement 60
Normal Retirement Age 62
Projected Benefit Account Value at Age 62 $100,000
Actual Benefit Account Value at Age 60 $20,000
Distribution Period Elected for Benefit Account (Schedule F) 10 yrs.
Projected Index Benefit at Age 62 $50,000
Projected Index Benefit at Age 60 $25,000
Applicable Percentage at Age 60 75%
First Year Benefit Calculation: Age 60
1) Benefit Account [($20,000 )10) x .75] $ 1,500
2) Index Benefit ($25,000 x .75) $18,750
-------
Total First Year Benefit $20,250
=======
</TABLE>
3.2. Payments Upon Retirement. If the Employee shall remain in the
------------------------
continuous employment of the Employer until attaining sixty-two (62) years of
age, the Employee shall be entitled to be paid the Applicable Percentage of the
Employee Benefits specified in Schedule "B", payable in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Employee Retires (or on such later date as may
be mutually agreed upon by the Employee and the Employer in advance of said
Retirement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
-7-
<PAGE>
3.3. Payments in the Event of Death After Retirement. The Employer
-----------------------------------------------
agrees that if the Employee Retires, but shall die before receiving all of the
Employee Benefits, the Employer will make such payments to which the Employee
may be entitled, to the Employee's designated beneficiary in lump sum. If a
valid Beneficiary Designation is not in effect, then the remaining amounts due
to the Employee under the terms of this Agreement shall be paid to the
Employee's Surviving Spouse. If the Employee leaves no Surviving Spouse, the
remaining amounts due to the Employee under the terms of this Agreement shall be
paid to the duly qualified personal representative, executor or administrator of
the Employee's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
--------------------------------------------------------------------
4.1. Payments in the Event of Death Prior to Retirement. If the Employee
--------------------------------------------------
dies while actively employed by the Employer at any time after the Effective
Date of this Agreement, but prior to Retirement, the Employer agrees to pay the
Employee Benefits to which the Employee is then entitled to the Employee's
designated beneficiary in lump sum. If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Employee under the terms of this
Agreement shall be paid to the Employee's Surviving Spouse. If the Employee
leaves no Surviving Spouse, the remaining amounts due to the Employee under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Employee's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the
-------------------------------------------------------
event the Employee becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Employee shall be entitled to be paid the
Applicable Percentage of the Employee Benefits specified in Schedule "B",
payable in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Employee
becomes Disabled (or on such later date as may be mutually agreed upon by the
Employee and the Employer not less than fifteen (15) days prior to such
commencement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
5. Payments in the Event Employment Is Terminated Prior to Retirement. As
------------------------------------------------------------------
indicated in subparagraph 2.1 above, the Employer reserves the right to
terminate the Employee's employment, with or without cause but subject to any
written employment agreement which may then exist, at any time prior to the
Employee's Retirement. In the event that the employment of the Employee shall be
terminated, other than by reason of death, Disability or Retirement, prior to
the Employee's attaining sixty-two (62) years of age, then this Agreement shall
terminate on the date of such termination of employment; provided, however, that
the Employee shall be entitled to the following benefits as may be applicable
depending upon the circumstances surrounding the Employee's termination:
5.1. Termination Without Cause. If the Employee's employment is
-------------------------
terminated by the Employer without cause, and such termination is not subject to
the provisions of subparagraph 5.4 below, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee
-8-
<PAGE>
Benefits specified in Schedule "B", payable in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Employee attains sixty-two (62) years of age (or on such
later date as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) (i) for the period
designated in Schedule "F", in the case of the balance in the Benefit Account
and (ii) until the Employee'L/F death, in the case of the Index Benefit defined
in Schedule "B".
5.2. Voluntary Termination by the Employee. If the Employee's employment
-------------------------------------
is terminated by voluntary resignation, and such resignation is not subject to
the provisions of subparagraph 5.4 below, the Employee shall be entitled to be
paid the following benefits:
(a) If the Applicable Percentage at the date of termination is one
hundred percent (100%), the Employee shall be paid (i) the Employee Benefits
specified in Schedule "B", payable in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Employee attains sixty-two (62) years of age (or on such later date as
may be mutually agreed upon by the Employee and the Employer not less than
fifteen (15) days prior to such commencement date) (A) for the period designated
in Schedule "F", in the case of the balance in the Benefit Account and (B) until
the Employee's death, in the case of the Index Benefit defined in Schedule "B.
(b) If the Applicable Percentage at the date of termination is less
than one hundred percent (100%), the Employee shall be paid the Applicable
Percentage of the Employee Benefits specified in Schedule "B", based on a ten
(10) year (120 month) payout of the Benefit Account balance at termination
notwithstanding the Employee's election of a different payout period under
Schedule "F", but not more than sixty percent (60%) of the Employee's base
salary (i.e., exclusive of any bonuses, incentive payments or other employee
benefits to which the Employee would otherwise be entitled) at the date of
termination. Such benefit shall be payable in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Employee attains sixty-two (62) years of age (or on such
later date as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) (A) for the period
of one hundred twenty (120) months, in the case of the balance in the Benefit
Account and (B) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B" (subject to reduction upon application of the sixty
(60%) limitation described above).
5.3. Termination for Cause. If the Employee suffers a "Termination for
---------------------
Cause", as defined in subparagraph 1.15 of this Agreement, the Employee shall
forfeit any and all rights and benefits the Employee may have under the terms of
this Agreement and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Employee by the Employer pursuant to the terms
of this Agreement.
5.4. Termination by the Employer on Account of or After a Change in
--------------------------------------------------------------
Control. In the event the Employee's employment with the Employer is terminated
- -------
by the Employer
-9-
<PAGE>
"in connection with a Change in Control" as described in subparagraph 1.2(a) and
as defined in subparagraph 1.4 above, the Employee shall be entitled to be paid
the Applicable Percentage of the Employee Benefits specified in Schedule "B", in
substantially equal monthly installments on the first day of each month,
beginning with the month following the month in which the Employee attains
fifty-nine and one-half (59.5) years of age or any month thereafter, as
requested in writing by the Employee and delivered to the Employer or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Employee does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Employee attains sixty-two (62) years of age. The installments shall be payable
(i) for the period designated in Schedule "F" in the case of the balance in the
Benefit Account and (ii) until the Employee's death in the case of the Index
Benefit defined in Schedule "B".
5.5. Payments in the Event of Death Following Termination. If the
----------------------------------------------------
Employee shall die prior to receiving all of the applicable benefits described
in this Paragraph 5 to which the Employee is entitled, then the Employer will
make such payments to the Employee's designated beneficiary. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Employee shall be paid to the Employee's Surviving Spouse. If the Employee
leaves no Surviving Spouse, the remaining amounts due to the Employee shall be
paid to the duly qualified personal representative, executor or administrator of
the Employee's estate.
6. Section 280G Benefits Adjustment. If all or any portion of the
-----------------------------------
amounts payable to the Employee under this Agreement, either alone or together
with other payments which the Employee has the right to receive from the
Employer, constitute "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are
subject to the excise tax imposed by Section 4999 of the Code (or similar tax
and/or assessment), the Employer (and its successor) shall increase the amounts
payable under this Agreement to the extent necessary to afford the Employee
substantially the same economic benefit under this Agreement as the Employee
would have received had no such excise tax been imposed on the payments due the
Employee under this Agreement. The determination of the amount of any such
excise taxes shall be made initially by the independent accounting firm employed
by the Employer immediately prior to the occurrence of the event constituting a
Change in Control.
-10-
<PAGE>
If, at a later date, it is determined (pursuant to final regulations or
published rulings of the Internal Revenue Service, final judgment of a court of
competent jurisdiction, or otherwise) that the amount of excise taxes payable to
the Employee is greater than the amount initially so determined, then the
Employer (or its successor) shall pay to the Employee an amount equal to the sum
of (i) such additional excise taxes, and (ii) any interest, fines and penalties
resulting from such underpayment, plus (iii) an amount necessary to reimburse
the Employee substantially for any income, excise or other taxes payable by the
Employee with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii).
7. Right To Determine Funding Methods. The Employer reserves the right to
----------------------------------
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Employee, the Employee's spouse or the Employee's beneficiaries
under the terms of this Agreement. In the event that the Employer elects to fund
this Agreement, in whole or in part, through the use of life insurance or
annuities, or both, the Employer shall determine the ownership and beneficial
interests of any such policy of life insurance or annuity. The Employer further
reserves the right, in its sole and absolute discretion, to terminate any such
policy, and any other device used to fund its obligations under this Agreement,
at any time, in whole or in part. Consistent with Paragraph 9 below, neither the
Employee, the Employee's spouse nor the Employee's beneficiaries shall have any
right, title or interest in or to any funding source or amount utilized by the
Employer pursuant to this Agreement, and any such funding source or amount shall
not constitute security for the performance of the Employer's obligations
pursuant to this Agreement. In connection with the foregoing, the Employee
agrees to execute such documents and undergo such medical examinations or tests
which the Employer may request and which may be reasonably necessary to
facilitate any funding for this Agreement including, without limitation, the
Employer's acquisition of any policy of insurance or annuity. Furthermore, a
refusal by the Employee to consent to, participate in and undergo any such
medical examinations or tests shall result in the immediate termination of this
Agreement and the immediate forfeiture by the Employee, the Employee's spouse
and the Employee's beneficiaries of any and all rights to payment hereunder.
8. Claims Procedure. The Employer shall, but only to the extent necessary
----------------
to comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, the Employer shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Employer denying a claim by the Employee, the Employee's spouse, or the
Employee's beneficiary for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Employee, the Employee's spouse or the Employee's beneficiary, as the case may
be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Employer shall provide the Employee, the Employee's
spouse or the Employee's beneficiary with a reasonable opportunity for a full
and fair review of the decision denying such claim.
-11-
<PAGE>
9. Status Under Secular Trust and as an Unsecured General Creditor.
---------------------------------------------------------------
(a) The Employee has established a secular trust, identified as the
Gregg A. Johnson Secular Trust, a copy of which is attached hereto as Schedule
"G" (the "Trust"). The Employer shall make contributions to the Trust as
specified in Schedule "C" of this Agreement. The contributions shall be
deposited into an account which constitutes the Trust Fund as defined in the
Trust. Notwithstanding anything contained herein to the contrary, the Trust Fund
shall not be subject to the claims of the Employer's general creditors except as
may be expressly stated in the Trust. In the event of a conflict between the
provisions of the Trust and this Agreement, the provisions of the Trust shall
control.
(b) Except as provided in subparagraph 9(a) above: (i) neither the
Employee, the Employee's spouse or the Employee's designated beneficiaries shall
have any legal or equitable rights, interests or claims in or to any specific
property or assets of the Employer as a result of this Agreement; (ii) none of
the Employer's assets shall be held in or under any trust for the benefit of the
Employee, the Employee's spouse or the Employee's designated beneficiaries or
held in any way as security for the fulfillment of the obligations of the
Employer under this Agreement; (iii) all of the Employer's assets shall be and
remain the general unpledged and unrestricted assets of the Employer; (iv) the
Employer's obligation under this Agreement shall be that of an unfunded and
unsecured promise by the Employer to pay money in the future; and (v) the
Employee, the Employee's spouse and the Employee's designated beneficiaries
shall be unsecured general creditors with respect to any benefits which may be
payable under the terms of this Agreement.
(c) Notwithstanding subparagraphs 9(b)(i) through 9(b)(v) above, the
Employer and the Employee acknowledge and agree that, in the event of a Change
in Control and at the written request of the Employee, the Employer shall
establish, not later than the effective date of the Change in Control, a Rabbi
Trust or multiple Rabbi Trusts upon such terms and conditions as the Employer in
its sole discretion deems appropriate and in compliance with applicable
provisions of the Code in order to permit the Employer to make contributions
and/or transfer assets to the Rabbi Trust or Rabbi Trusts to discharge its
obligations pursuant to this Agreement. The principal of the Rabbi Trust or
Rabbi Trusts and any earnings thereon shall be held separate and apart from
other funds of the Employer to be used exclusively for discharge of the
Employer's obligations pursuant to this Agreement and shall continue to be
subject to the claims of the Employer's general creditors until paid to the
Employee or its beneficiaries in such manner and at such times as specified in
this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the
----------------------------------------
other provisions of this Agreement, the Board of Directors of the Employer may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Employee (or the Employee's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Employer's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors
-12-
<PAGE>
and offered to the Employee [or Employee's spouse or designated beneficiaries]
on a "take it or leave it basis").
11. Miscellaneous.
-------------
11.1. Opportunity To Consult With Independent Advisors. The Employee
------------------------------------------------
acknowledges that the Employee has been afforded the opportunity to consult with
independent advisors of his or her choosing including, without limitation,
accountants or tax advisors and counsel regarding both the benefits granted to
the Employee under the terms of this Agreement and the (i) terms and conditions
which may affect the Employee's right to these benefits and (ii) personal tax
effects of such benefits including, without limitation, the effects of any
federal or state taxes, Section 280G of the Code, and any other taxes, costs,
expenses or liabilities whatsoever related to such benefits, which in any of the
foregoing instances the Employee acknowledges and agrees shall be the sole
responsibility of the Employee notwithstanding any other term or provision of
this Agreement. The Employee further acknowledges and agrees that the Employer
shall have no liability whatsoever related to any such personal tax effects or
other personal costs, expenses, or liabilities applicable to the Employee and
further specifically waives any right for the Employee and his or her heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Employer related to the matters described
above in this subparagraph 11.1. The Employee further acknowledges and agrees
that the Employee has read, understands and consents to all of the terms and
conditions of this Agreement, and that the Employee enters into this Agreement
with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters
-----------------------
in question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Employer in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
in San Francisco, California. In the event JAMS is unable or unwilling to
conduct the arbitration provided for under the terms of this Paragraph, or has
discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), in San Francisco, California, shall conduct the binding
arbitration referred to in this Paragraph. Notice of the demand for arbitration
shall be filed in writing with the other party to this Agreement and with JAMS
(or AAA, if necessary). In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statute of limitations. The arbitration shall be subject to such rules of
procedure used or established by JAMS, or if there are none, the rules of
procedure used or established by AAA. Any award rendered by JAMS or AAA shall be
final and binding upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and assigns, and may be
entered in any court having jurisdiction thereof. The obligation of the parties
to arbitrate pursuant to this clause shall be specifically enforceable in
accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Jose, California, unless otherwise agreed to
by the parties.
-13-
<PAGE>
11.3. Attorneys' Fees. In the event of any arbitration or litigation
---------------
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by the
arbitrator(s) or court, as the case may be, to have most nearly prevailed, even
if such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Employee
------
or the Employer under this Agreement shall be deemed to have been duly given, if
by personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Human Resources
If to the Employee: Gregg A. Johnson
[omitted]
-14-
<PAGE>
11.5. Assignment. Neither the Employee, the Employee's spouse, nor any
----------
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Employee, the Employee's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Employer. The Employer'L/F consent, if any, to one or more
assignments or transfers shall not obligate the Employer to consent to or be
construed as the Employer's consent to any other or subsequent assignment or
transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of the Employee and the Employer and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used in this Agreement
shall be deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7. Non-waiver. The failure of either party to enforce at any time or
----------
for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or
------------------
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement, including the schedules and
----------------
exhibits attached hereto and incorporated herein by this reference, contains all
of the covenants and agreement, and supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the subject
matter of this Agreement. Each party to this Agreement acknowledges that no
other representations, inducements, promises, or agreements, oral or otherwise,
have been made by any party, or anyone acting on behalf of any party, which are
not set forth herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be
-------------
effective only if it is in writing and signed by each party or such party's
authorized representative.
-15-
<PAGE>
11.11. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
11.13. Governing Law. The laws of the State of California, other than
-------------
those laws denominated choice of law rules, and, where applicable, the rules and
regulations of the California Commissioner of Financial Institutions, the
Federal Deposit Insurance Corporation, the Federal Reserve Board of Governors
and the Office of the Comptroller of the Currency, shall govern the validity,
interpretation, construction and effect of this Agreement.
11.14. Waiver of Prior Plan Benefit. To the extent that the Employee is
----------------------------
a participant in any other supplemental benefit plan provided by the Employer
which affords the Employee benefits in the event of the Employee's retirement or
death or a change in control of the Employer, it is an express condition
precedent to the effectiveness of this Agreement that the Employee execute and
deliver the Waiver of Prior Plan Benefit attached as Schedule "D" to this
Agreement.
IN WITNESS WHEREOF, the Employer and the Employee have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER THE EMPLOYEE
Greater Bay Bancorp
By: /s/ David L. Kalkbrenner /s/ Gregg A. Johnson
------------------------ --------------------
David L. Kalkbrenner Gregg A. Johnson
President
-16-
<PAGE>
SCHEDULE A
----------
Applicable
Calendar Year Percentage
12/31/98 0%
12/31/99 0%
12/31/00 0%
12/31/01 0%
12/31/02 0%
12/31/03 20%
12/31/04 40%
12/31/05 60%
12/31/06 80%
12/31/07 100%
-17-
<PAGE>
SCHEDULE B
----------
INDEX EMPLOYEE BENEFITS
-----------------------
1. Index Employee Benefits Determination. The Index Employee Benefits
-------------------------------------
consist of (i) accruals to the Employee's Benefit Account (as described in
subparagraph (a) below) during the Employee's employment by the Employer and
(ii) the Index Benefit (as described in subparagraph (b) below) after the
Employee's employment by the Employer terminates. The Index Employee Benefits
shall be determined based upon the following:
a. Benefit Account: A Benefit Account shall be established as a
---------------
liability reserve account on the books of the Employer for the benefit of the
Employee. Prior to the date on which the Employee becomes eligible to receive
payments under the Plan, such Benefit Account shall be increased (or decreased)
each Plan Year by an amount equal to the annual earnings (or loss) for that Plan
Year determined by the Index (described in subparagraph c below), less the
Opportunity Cost (described in subparagraph d below) for that Plan Year.
b. Index Benefit: After the date on which the Employee becomes eligible
-------------
to receive payments under the Plan, the Index Benefit for the Employee for any
Plan Year shall be determined by subtracting the Opportunity Cost for that Plan
Year from the annual earnings (if any) for that Plan year determined by the
Index.
c. Index: The Index for any Plan Year shall be the aggregate annual
-----
after-tax income from the life insurance contracts described hereinafter as
defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such
insurance contracts were purchased on the Effective Date.
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $285,500
------------
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $474,500
-------------
If such contracts of life insurance are actually purchased by the Employer, then
the actual policies as of the dates purchased shall be used in calculations to
determine the Index and Opportunity Cost. If such contracts of life insurance
are not purchased or are subsequently surrendered or lapsed, then the Employer
shall receive and use annual policy illustrations that assume the above
described policies were purchased from the above named insurance company(ies) on
the Effective Date to calculate the amount of the Index and Opportunity Cost.
-18-
<PAGE>
d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be
----------------
calculated by multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount of any Index
Benefits (described at subparagraph b above), and (iii) the amount of all
previous years after-tax Opportunity Costs; by (b) the average annualized
after-tax cost of funds calculated using a one-year U.S. Treasury Bill as
published in the Wall Street Journal. The applicable tax rate used to calculate
the Opportunity Cost shall be the Employer's marginal tax rate until the
Employee's Retirement, or other termination of service (including a Change in
Control). Thereafter, the Opportunity Cost shall be calculated with the
assumption of a marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Employer is higher or
lower.
2. Employee Benefits Payments. The Employee shall be entitled to payment
--------------------------
of the Index Employee Benefits on the terms as specified in the Agreement.
EXAMPLE
INDEX EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
[n] [A] [B] [C] [D]
End of Year Cash Surrender Value of Life Index Opportunity Cost Annual Benefit
- ----------- -------------------------------- ----- ---------------- --------------
Insurance Policy [Annual Policy A0 = premium B-C
----------------
Income] A0+Cn-1x.05x
An-An-1 (1-42%)
<S> <C> <C> <C> <C>
0 $1, 000,000 -- -- --
1 $1,050,000 $50,000 $29,000 $21,000
2 $1,102,500 $52,500 $29,841 $22,659
3 $1,157,625 $55,125 $30,706 $24,419
</TABLE>
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
-19-
<PAGE>
SCHEDULE C
----------
SUPPLEMENTAL BENEFITS
---------------------
In addition to the Employee Benefits specified elsewhere in this Agreement,
the Employee shall be entitled to receive the following supplemental benefits
(the "Supplemental Benefits"):
Secular Trust Defined Benefit. Provided that the Employee has not exercised
the Employee's withdrawal rights under the Trust, the Employer shall make
contributions to the Trust, pursuant to paragraph 9 of the Agreement, on a
pre-tax basis in the amounts shown in column (B) of the following table. Such
contributions shall be made from time to time in the discretion of the Employer
provided that the total amount shown in column (B) below has been contributed to
the Trust by the end of the Plan Year shown in column (A) below.
(A) (B)
1998 $0
1999 $43,187
2000 $46,309
2001 $49,657
2002 $53,246
2003 $57,096
2004 $61,223
2005 $65,649
2006 $70,395
2007 $75,483
2008 $80,940
2009 $86,791
2010 $93,066
2011 $99,793
-20-
<PAGE>
The aggregate amount of the foregoing contributions shall be subject to
adjustment, from time to time, to ensure that the Trust is adequately funded to
afford the Employee with a projected defined benefit equal to the Applicable
Percentage of Forty Five Thousand Dollars ($45,0000) per annum for twenty (20)
years commencing the year in which the Employee attains age sixty-two (62). In
the event that the contributions made by the Employer to the Trust as provided
above are determined to be insufficient to fund the foregoing Supplemental
Benefits, the Employer shall make such further contributions to the Trust as may
be necessary to fund fully such Supplemental Benefits. Such determination and
adjusting contributions, if required, may be made from time to time at the
discretion of the Employer, but in all events not later than the date on which
the Employee Retires or otherwise becomes eligible to begin receiving the
Employee Benefits specified in Schedule "B". Provided that the foregoing final
adjusting contribution, if required, has been made, the Employer shall have no
obligation to make further contributions to the Trust once the Employee Retires
or otherwise becomes eligible to begin receiving the Employee Benefits specified
in Schedule "B".
Notwithstanding anything herein or in the Agreement to the contrary, the
obligation of the Employer to make the contributions to the Trust as specified
above shall terminate automatically upon the forfeiture or other termination of
the Employee's right to receive the Employee Benefits specified in Schedule "B",
as provided in this Agreement.
-21-
<PAGE>
SCHEDULE D
----------
WAIVER OF PRIOR PLAN BENEFITS
-----------------------------
None
-22-
<PAGE>
SCHEDULE E
----------
BENEFICIARY DESIGNATION
-----------------------
To the Administrator of the Greater Bay Bancorp Employee Supplemental
Compensation Benefits Agreement:
Pursuant to the Provisions of my Employee Supplemental Compensation
Benefits Agreement with Greater Bay Bancorp, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
Primary Beneficiary:
- -------------------
- ------------------- ---------------------- ------------------------
Name Address Relationship
Secondary (Contingent) Beneficiary:
- ----------------------------------
- ------------------- ---------------------- ------------------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Employee Supplemental Compensation Benefits
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit payable according to the terms of my
Employee Supplemental Compensation Benefits Agreement shall be payable to the
personal representatives of the estate of said beneficiary who survived me but
died prior to receiving the total benefit provided by my Employee Supplemental
Compensation Benefits Agreement.
Dated: , 1998
---------------------------- -------------------------------
Gregg A. Johnson
-23-
<PAGE>
CONSENT OF THE EMPLOYEE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
- ------------------------------------
I, Barbara Johnson, being the spouse of Gregg A. Johnson, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Employee Supplemental Compensation
Benefits Agreement entered into by my spouse effective as of April 6, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Employee
Supplemental Compensation Benefits Agreement and in which I may have a marital
property interest.
Dated: , 1998
----------------------------
- --------------------------------------------
Barbara Johnson
-24-
<PAGE>
SCHEDULE F
----------
DISTRIBUTION ELECTION
---------------------
Pursuant to the Provisions of my Employee Supplemental Compensation Benefits
Agreement with Greater Bay Bancorp, I hereby elect to have any distribution of
the balance in my Benefit Account paid to me in installments as designated
below:
---- sixty (60) monthly installments with the amount of each installment
determined as of each installment date by dividing the entire amount
in my Benefit Account by the number of installments then remaining to
be paid, with the final installment to be the entire remaining balance
in the Benefit Account.
---- one hundred twenty (120) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
---- one hundred eighty (180) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
Dated: , 1998
----------------------------
Signed:
-----------------------------------
Gregg A. Johnson
-25-
<PAGE>
SCHEDULE G
-----------
SECULAR TRUST
-------------
[to be finalized]
-26-
<PAGE>
EXHIBIT 10.6
EMPLOYEE SUPPLEMENTAL COMPENSATION BENEFITS AGREEMENT
-----------------------------------------------------
This Employee Supplemental Compensation Benefits Agreement (the
"Agreement") is made and entered into effective as of January 1, 1998, by and
between Greater Bay Bancorp, a California banking corporation (the "Employer"),
and Steven C. Smith, an individual residing in the State of California (the
"Employee").
R E C I T A L S
---------------
WHEREAS, the Employee is an employee of the Employer, and, since December
16, 1993, has become eligible to participate in the Employee Supplemental
Compensation Benefits Plan represented by this Agreement (the "Plan");
WHEREAS, the Employer desires to establish a compensation benefits program
as a fringe benefit for certain officers of the Employer in order to attract and
retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Employee's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Employee with certain benefits, on the terms and conditions set
forth herein, in order to reasonably induce the Employee to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer;
WHEREAS, it is the intention of the parties that the Employer's obligations
under this Agreement shall be that of an unfunded and unsecured promise to
provide the benefits to the Employee set forth hereinafter and except for the
contributions, if any, to a secular trust to be established by the Employee as
grantor, the Employee and the Employee's beneficiaries shall be unsecured
general creditors with respect to any benefits provided under the terms of this
Agreement; and
WHEREAS, the Employee and the Employer wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Employee, or to the Employee's spouse or the Employee's
designated beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Employee in the future, as well as the mutual promises and covenants contained
herein, the Employee and the Employer agree as follows:
<PAGE>
A G R E E M E N T
-----------------
1. Terms and Definitions.
---------------------
1.1. Administrator. The Employer shall be the "Administrator" and,
-------------
solely for the purposes of ERISA, as defined in subparagraph 1.11 below, the
"fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Applicable Percentage. The term "Applicable Percentage" shall mean
---------------------
that percentage listed on Schedule "A" attached hereto which is adjacent to the
number of calendar years which shall have elapsed from the date of the
Employee's commencement of employment with and providing personal services to
the Employer or, if later, the date on which the Employee became eligible to
participate in the Plan represented by this Agreement, and ending on the date
payments are to first begin under the terms of this Agreement. Notwithstanding
the foregoing or the percentages set forth on Schedule "A", but subject to all
other terms and conditions set forth herein, the "Applicable Percentage" shall
be:
(a) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
termination of the Employee's employment by the Employer if such termination is
in connection with a "Change in Control" as defined in subparagraph 1.4 below. A
termination shall be deemed to be in connection with a Change in Control if,
within two (2) years following the occurrence of a Change in Control: (i) the
Employee's employment with the Employer is terminated by the Employer other than
a Termination for Cause; or (ii) by reason of the Employer's actions any adverse
and material change occurs in the scope of the Employee's position,
responsibilities, duties, salary, benefits or location of employment; or (iii)
the Employer causes an event to occur which reasonably constitutes or results in
a demotion, a significant diminution of responsibilities or authority, or a
constructive termination (by forcing a resignation or otherwise) of the
Employee's employment;
(b) provided payments have not yet begun with respect to the
Employee Benefits specified in Schedule "B", one hundred percent (100%) upon the
occurrence of (i) the Employee's death prior to the termination of the
Employee's employment by the Employer, or (ii) the Employee's Disability (as
defined in subparagraph 1.6 below) other than a Disability that occurs after the
termination of the Employee's employment by the Employer; and
(c) notwithstanding subclauses (a) and (b) of this subparagraph
1.2, zero percent (0%) in the event the Employee takes any intentional action
which prevents the Employer from collecting the proceeds of any life insurance
policy which the Employer may happen to own at the time of the Employee's death
and of which the Employer is the designated beneficiary (the "Employer Cost
Recovery Policy"). Furthermore, notwithstanding the foregoing, or anything
contained in this Agreement to the contrary, in the event the Employee takes any
intentional action which prevents the Employer from collecting the proceeds of
any Employer Cost Recovery Policy, then: (1) the Employee, the Employee's
estate, designated beneficiary or Surviving Spouse shall no
-2-
<PAGE>
longer be entitled to receive any of the amounts payable under the terms of this
Agreement, and (2) the Employer shall have the right to recover from Employee's
estate and/or Surviving Spouse all of the amounts paid to the Employee's estate
or Surviving Spouse, as the case may be (with respect to amounts paid prior to
the Employee's death or paid to the Employee's estate or Surviving Spouse) or
from the Employee's designated beneficiary (with respect to amounts paid to the
designated beneficiary) pursuant to the terms of this Agreement prior to and
after Employee's death.
1.3. Beneficiary. The term "beneficiary" or "designated beneficiary"
-----------
shall mean the person or persons whom the Employee shall designate in a valid
Beneficiary Designation, a copy of which is attached hereto as Schedule "E," to
receive the benefits provided hereunder. A Beneficiary Designation shall be
valid only if it is in the form attached hereto and made a part hereof and is
completed and signed by the Employee and received by the Administrator prior to
the Employee's death.
1.4. Change in Control. The term "Change in Control" shall mean the
-----------------
first to occur of any of the following events with respect to the Employer (with
the term "Employer" being defined for purposes of determining whether a "Change
in Control" has occurred to include any parent bank holding company which owns
100% of the Employer's outstanding voting capital stock):
(a) Any "person" (as such term is used in sections 13 and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
becomes the beneficial owner (as that term is used in section 13(d) of the
Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of
the Employer's capital stock entitled to vote in the election of directors,
other than a group of two or more persons not (i) acting in concert for the
purpose of acquiring, holding or disposing of such stock or (ii) otherwise
required to file any form or report with any governmental agency or regulatory
authority having jurisdiction over the Employer which requires the reporting of
any change in control;
(b) During any period of not more than two (2) consecutive years,
not including any period prior to the adoption of the Plan represented by this
Agreement, individuals who, at the beginning of such period, constitute the
Board of Directors of the Employer, and any new director (other than a director
designated by a person who has entered into an agreement with the Employer to
effect a transaction described in clause (a), (c), (d) or (e) of this
subparagraph 1.4) whose appointment to the Board of Directors or nomination for
election to the Board of Directors was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office, either were
directors at the beginning of such period or whose appointment or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof;
(c) The effective date of any consolidation or merger of the
Employer (after all requisite shareholder, applicable regulatory and other
approvals and consents have been obtained), other than a consolidation or merger
of the Employer in which the holders of the voting capital stock of the Employer
immediately prior to the consolidation or merger hold more than fifty
-3-
<PAGE>
percent (50%) of the voting capital stock of the surviving entity immediately
after the consolidation or merger;
(d) The shareholders of the Employer approve any plan or proposal
for the liquidation or dissolution of the Employer; or
(e) The shareholders of the Employer approve the sale or transfer
of substantially all of the Employer's assets to parties that are not within a
"controlled group of corporations" (as that term is defined in section 1563 of
the Code) in which the Employer is a member.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986,
--------
as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall
-------------------
have the same meaning given such terms in any policy of disability insurance
maintained by the Employer for the benefit of employees including the Employee.
In the absence of such a policy which extends coverage to the Employee in the
event of disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of the
Employee's duties to the Employer for at least ninety (90) days.
1.7. Early Retirement Date. The term "Early Retirement Date" shall mean
---------------------
the Retirement, as defined below, of the Employee on a date which occurs prior
to the Employee attaining sixty-two (62) years of age, as defined below, but
after the Employee has attained fifty-nine and one-half (59.5) years of age.
1.8. Effective Date. The term "Effective Date" shall mean the date
--------------
first written above.
1.9. Employee Benefits. Except as otherwise stated in this Agreement,
-----------------
the term "Employee Benefits" shall mean the Index Employee Benefits, if any,
described in and determined in accordance with Schedule "B" and the supplemental
benefits described in and determined in accordance with Schedule "C", and
reduced or adjusted to the extent: (i) required under the other provisions of
this Agreement; (ii) required by reason of the lawful order of any regulatory
agency or body having jurisdiction over the Employer; or (iii) required in order
for the Employer to properly comply with any and all applicable state and
federal laws, including, but not limited to, income, employment and disability
income tax laws (e.g., FICA, FUTA, SDI).
-4-
<PAGE>
1.10. Employer. Except as otherwise set forth in this Agreement, the
--------
term "Employer" shall mean Greater Bay Bancorp; provided, however, that for
purposes of subparagraph 1.15 (definition of Termination for Cause) and
Paragraph 5 (including its subparagraphs, regarding termination of employment),
the term "Employer" shall mean Greater Bay Bancorp and its subsidiaries and
affiliated entities.
1.11. ERISA. The term "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
1.12. Plan Year. The term "Plan Year" shall mean the Employer's fiscal
---------
year.
1.13. Retirement. The term "Retirement" or "Retires" shall refer to the
----------
date which the Employee acknowledges in writing to the Employer to be the last
day the Employee will provide any significant personal services, whether as an
employee or independent consultant or contractor, to the Employer or to, for, or
on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal services"
shall mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period for compensation excluding
services, if any, rendered by the Employee after Retirement pursuant to the
terms of a consulting agreement described in Schedule "C", if any.
1.14. Surviving Spouse. The term "Surviving Spouse" shall mean the
----------------
person, if any, who shall be legally married to the Employee on the date of the
Employee's death.
1.15. Termination for Cause. The term "Termination for Cause" shall
---------------------
mean termination of the employment of the Employee by reason of any of the
following:
(a) The Employee's deliberate violation of (i) any state or
federal banking or securities laws, or of the Bylaws, rules, policies or
resolutions of the Employer, or (ii) of the rules or regulations of the
California Commissioner of Financial Institutions, the Federal Deposit Insurance
Corporation, the Federal Reserve Board of Governors, the Office of the
Comptroller of the Currency or any other regulatory agency or governmental
authority having jurisdiction over the Employer, which has a material adverse
effect upon the Employer; or
(b) The Employee's conviction of (i) any felony or (ii) a crime
involving moral turpitude or a fraudulent or dishonest act which, in each case,
has a material adverse effect on the Employer.
2. Scope, Purpose and Effect.
-------------------------
2.1. Contract of Employment. Although this Agreement is intended to
----------------------
provide the Employee with an additional incentive to remain in the employ of the
Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Employee and the Employer nor shall any provision of this
Agreement restrict or expand the right of the Employer to terminate
-5-
<PAGE>
the Employee's employment. This Agreement shall have no impact or effect upon
any separate written Employment Agreement which the Employee may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart from, and shall have no effect upon, or be
affected by, the terms and provisions of said Employment Agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are
--------------
granted by the Employer as a fringe benefit to the Employee and
are not a part of any salary reduction plan or any arrangement deferring a bonus
or a salary increase. The Employee has no option to take any current payments or
bonus in lieu of the benefits provided by this Agreement.
3. Payments Upon Early Retirement or Retirement and After Retirement.
-----------------------------------------------------------------
3.1. Payments Upon Early Retirement. The Employee shall have the right
------------------------------
to Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.7 above. In the event the Employee elects to Retire on a date
which constitutes an Early Retirement Date, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee Benefits specified in Schedule
"B", payable in substantially equal monthly installments on the first day of
each month, beginning with the month following the month in which the Early
Retirement Date occurs (or on such later date as may be mutually agreed upon by
the Employee and the Employer in advance of such Early Retirement Date) (i) for
the period designated in Schedule "F", in the case of the balance in the Benefit
Account and (ii) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B".
-6-
<PAGE>
EXAMPLE
Payments Upon Early Retirement
Assumptions:
- -----------
Age at Early Retirement 60
Normal Retirement Age 62
Projected Benefit Account Value at Age 62 $100,000
Actual Benefit Account Value at Age 60 $20,000
Distribution Period Elected for Benefit Account (Schedule F) 10 yrs.
Projected Index Benefit at Age 62 $50,000
Projected Index Benefit at Age 60 $25,000
Applicable Percentage at Age 60 75%
First Year Benefit Calculation: Age 60
1) Benefit Account [($20,000 )10) x .75] $ 1,500
2) Index Benefit ($25,000 x .75) $18,750
-------
Total First Year Benefit $20,250
=======
3.2. Payments Upon Retirement. If the Employee shall remain in the
------------------------
continuous employment of the Employer until attaining sixty-two (62) years of
age, the Employee shall be entitled to be paid the Applicable Percentage of the
Employee Benefits specified in Schedule "B", payable in substantially equal
monthly installments on the first day of each month, beginning with the month
following the month in which the Employee Retires (or on such later date as may
be mutually agreed upon by the Employee and the Employer in advance of said
Retirement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
-7-
<PAGE>
3.3. Payments in the Event of Death After Retirement. The Employer
-----------------------------------------------
agrees that if the Employee Retires, but shall die before receiving all of the
Employee Benefits, the Employer will make such payments to which the Employee
may be entitled, to the Employee's designated beneficiary in lump sum. If a
valid Beneficiary Designation is not in effect, then the remaining amounts due
to the Employee under the terms of this Agreement shall be paid to the
Employee's Surviving Spouse. If the Employee leaves no Surviving Spouse, the
remaining amounts due to the Employee under the terms of this Agreement shall be
paid to the duly qualified personal representative, executor or administrator of
the Employee's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
--------------------------------------------------------------------
4.1. Payments in the Event of Death Prior to Retirement. If the
--------------------------------------------------
Employee dies while actively employed by the Employer at any time after the
Effective Date of this Agreement, but prior to Retirement, the Employer agrees
to pay the Employee Benefits to which the Employee is then entitled to the
Employee's designated beneficiary in lump sum. If a valid Beneficiary
Designation is not in effect, then the remaining amounts due to the Employee
under the terms of this Agreement shall be paid to the Employee's Surviving
Spouse. If the Employee leaves no Surviving Spouse, the remaining amounts due to
the Employee under the terms of this Agreement shall be paid to the duly
qualified personal representative, executor or administrator of the Employee's
estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the
-------------------------------------------------------
event the Employee becomes Disabled at any time after the Effective Date of this
Agreement but prior to Retirement, the Employee shall be entitled to be paid the
Applicable Percentage of the Employee Benefits specified in Schedule "B",
payable in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Employee
becomes Disabled (or on such later date as may be mutually agreed upon by the
Employee and the Employer not less than fifteen (15) days prior to such
commencement date) (i) for the period designated in Schedule "F", in the case of
the balance in the Benefit Account and (ii) until the Employee's death, in the
case of the Index Benefit defined in Schedule "B".
5. Payments in the Event Employment Is Terminated Prior to Retirement. As
------------------------------------------------------------------
indicated in subparagraph 2.1 above, the Employer reserves the right to
terminate the Employee's employment, with or without cause but subject to any
written employment agreement which may then exist, at any time prior to the
Employee's Retirement. In the event that the employment of the Employee shall be
terminated, other than by reason of death, Disability or Retirement, prior to
the Employee's attaining sixty-two (62) years of age, then this Agreement shall
terminate on the date of such termination of employment; provided, however, that
the Employee shall be entitled to the following benefits as may be applicable
depending upon the circumstances surrounding the Employee's termination:
5.1. Termination Without Cause. If the Employee's employment is
-------------------------
terminated by the Employer without cause, and such termination is not subject to
the provisions of subparagraph 5.4 below, the Employee shall be entitled to be
paid the Applicable Percentage of the Employee
-8-
<PAGE>
Benefits specified in Schedule "B", payable in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Employee attains sixty-two (62) years of age (or on such
later date as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) (i) for the period
designated in Schedule "F", in the case of the balance in the Benefit Account
and (ii) until the Employee's death, in the case of the Index Benefit defined in
Schedule "B".
5.2. Voluntary Termination by the Employee. If the Employee's
-------------------------------------
employment is terminated by voluntary resignation, and such resignation is not
subject to the provisions of subparagraph 5.4 below, the Employee shall be
entitled to be paid the following benefits:
(a) If the Applicable Percentage at the date of termination is one
hundred percent (100%), the Employee shall be paid (i) the Employee Benefits
specified in Schedule "B", payable in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Employee attains sixty-two (62) years of age (or on such later date as
may be mutually agreed upon by the Employee and the Employer not less than
fifteen (15) days prior to such commencement date) (A) for the period designated
in Schedule "F", in the case of the balance in the Benefit Account and (B) until
the Employee's death, in the case of the Index Benefit defined in Schedule "B.
(b) If the Applicable Percentage at the date of termination is
less than one hundred percent (100%), the Employee shall be paid the Applicable
Percentage of the Employee Benefits specified in Schedule "B", based on a ten
(10) year (120 month) payout of the Benefit Account balance at termination
notwithstanding the Employee's election of a different payout period under
Schedule "F", but not more than sixty percent (60%) of the Employee's base
salary (i.e., exclusive of any bonuses, incentive payments or other employee
benefits to which the Employee would otherwise be entitled) at the date of
termination. Such benefit shall be payable in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Employee attains sixty-two (62) years of age (or on such
later date as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) (A) for the period
of one hundred twenty (120) months, in the case of the balance in the Benefit
Account and (B) until the Employee's death, in the case of the Index Benefit
defined in Schedule "B" (subject to reduction upon application of the sixty
(60%) limitation described above).
5.3. Termination for Cause. If the Employee suffers a "Termination for
---------------------
Cause", as defined in subparagraph 1.15 of this Agreement, the Employee shall
forfeit any and all rights and benefits the Employee may have under the terms of
this Agreement and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Employee by the Employer pursuant to the terms
of this Agreement.
5.4. Termination by the Employer on Account of or After a Change in
--------------------------------------------------------------
Control. In the event the Employee's employment with the Employer is terminated
- -------
by the Employer
-9-
<PAGE>
"in connection with a Change in Control" as described in subparagraph 1.2(a) and
as defined in subparagraph 1.4 above, the Employee shall be entitled to be paid
the Applicable Percentage of the Employee Benefits specified in Schedule "B", in
substantially equal monthly installments on the first day of each month,
beginning with the month following the month in which the Employee attains
fifty-nine and one-half (59.5) years of age or any month thereafter, as
requested in writing by the Employee and delivered to the Employer or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Employee does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Employee attains sixty-two (62) years of age. The installments shall be payable
(i) for the period designated in Schedule "F" in the case of the balance in the
Benefit Account and (ii) until the Employee's death in the case of the Index
Benefit defined in Schedule "B".
5.5. Payments in the Event of Death Following Termination. If the
----------------------------------------------------
Employee shall die prior to receiving all of the applicable benefits described
in this Paragraph 5 to which the Employee is entitled, then the Employer will
make such payments to the Employee's designated beneficiary. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Employee shall be paid to the Employee's Surviving Spouse. If the Employee
leaves no Surviving Spouse, the remaining amounts due to the Employee shall be
paid to the duly qualified personal representative, executor or administrator of
the Employee's estate.
6. Section 280G Benefits Adjustment. If all or any portion of the amounts
--------------------------------
payable to the Employee under this Agreement, either alone or together with
other payments which the Employee has the right to receive from the Employer,
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the
excise tax imposed by Section 4999 of the Code (or similar tax and/or
assessment), the Employer (and its successor) shall increase the amounts payable
under this Agreement to the extent necessary to afford the Employee
substantially the same economic benefit under this Agreement as the Employee
would have received had no such excise tax been imposed on the payments due the
Employee under this Agreement. The determination of the amount of any such
excise taxes shall be made initially by the independent accounting firm employed
by the Employer immediately prior to the occurrence of the event constituting a
Change in Control.
-10-
<PAGE>
If, at a later date, it is determined (pursuant to final regulations or
published rulings of the Internal Revenue Service, final judgment of a court of
competent jurisdiction, or otherwise) that the amount of excise taxes payable to
the Employee is greater than the amount initially so determined, then the
Employer (or its successor) shall pay to the Employee an amount equal to the sum
of (i) such additional excise taxes, and (ii) any interest, fines and penalties
resulting from such underpayment, plus (iii) an amount necessary to reimburse
the Employee substantially for any income, excise or other taxes payable by the
Employee with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii).
7. Right To Determine Funding Methods. The Employer reserves the right to
----------------------------------
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Employee, the Employee's spouse or the Employee's beneficiaries
under the terms of this Agreement. In the event that the Employer elects to fund
this Agreement, in whole or in part, through the use of life insurance or
annuities, or both, the Employer shall determine the ownership and beneficial
interests of any such policy of life insurance or annuity. The Employer further
reserves the right, in its sole and absolute discretion, to terminate any such
policy, and any other device used to fund its obligations under this Agreement,
at any time, in whole or in part. Consistent with Paragraph 9 below, neither the
Employee, the Employee's spouse nor the Employee's beneficiaries shall have any
right, title or interest in or to any funding source or amount utilized by the
Employer pursuant to this Agreement, and any such funding source or amount shall
not constitute security for the performance of the Employer's obligations
pursuant to this Agreement. In connection with the foregoing, the Employee
agrees to execute such documents and undergo such medical examinations or tests
which the Employer may request and which may be reasonably necessary to
facilitate any funding for this Agreement including, without limitation, the
Employer's acquisition of any policy of insurance or annuity. Furthermore, a
refusal by the Employee to consent to, participate in and undergo any such
medical examinations or tests shall result in the immediate termination of this
Agreement and the immediate forfeiture by the Employee, the Employee's spouse
and the Employee's beneficiaries of any and all rights to payment hereunder.
8. Claims Procedure. The Employer shall, but only to the extent necessary
----------------
to comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, the Employer shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Employer denying a claim by the Employee, the Employee's spouse, or the
Employee's beneficiary for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Employee, the Employee's spouse or the Employee's beneficiary, as the case may
be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Employer shall provide the Employee, the Employee's
spouse or the Employee's beneficiary with a reasonable opportunity for a full
and fair review of the decision denying such claim.
-11-
<PAGE>
9. Status Under Secular Trust and as an Unsecured General Creditor.
---------------------------------------------------------------
(a) The Employee has established a secular trust, identified as the
Steven C. Smith Secular Trust, a copy of which is attached hereto as Schedule
"G" (the "Trust"). The Employer shall make contributions to the Trust as
specified in Schedule "C" of this Agreement. The contributions shall be
deposited into an account which constitutes the Trust Fund as defined in the
Trust. Notwithstanding anything contained herein to the contrary, the Trust Fund
shall not be subject to the claims of the Employer's general creditors except as
may be expressly stated in the Trust. In the event of a conflict between the
provisions of the Trust and this Agreement, the provisions of the Trust shall
control.
(b) Except as provided in subparagraph 9(a) above: (i) neither the
Employee, the Employee's spouse or the Employee's designated beneficiaries shall
have any legal or equitable rights, interests or claims in or to any specific
property or assets of the Employer as a result of this Agreement; (ii) none of
the Employer's assets shall be held in or under any trust for the benefit of the
Employee, the Employee's spouse or the Employee's designated beneficiaries or
held in any way as security for the fulfillment of the obligations of the
Employer under this Agreement; (iii) all of the Employer's assets shall be and
remain the general unpledged and unrestricted assets of the Employer; (iv) the
Employer's obligation under this Agreement shall be that of an unfunded and
unsecured promise by the Employer to pay money in the future; and (v) the
Employee, the Employee's spouse and the Employee's designated beneficiaries
shall be unsecured general creditors with respect to any benefits which may be
payable under the terms of this Agreement.
(c) Notwithstanding subparagraphs 9(b)(i) through 9(b)(v) above, the
Employer and the Employee acknowledge and agree that, in the event of a Change
in Control and at the written request of the Employee, the Employer shall
establish, not later than the effective date of the Change in Control, a Rabbi
Trust or multiple Rabbi Trusts upon such terms and conditions as the Employer in
its sole discretion deems appropriate and in compliance with applicable
provisions of the Code in order to permit the Employer to make contributions
and/or transfer assets to the Rabbi Trust or Rabbi Trusts to discharge its
obligations pursuant to this Agreement. The principal of the Rabbi Trust or
Rabbi Trusts and any earnings thereon shall be held separate and apart from
other funds of the Employer to be used exclusively for discharge of the
Employer's obligations pursuant to this Agreement and shall continue to be
subject to the claims of the Employer's general creditors until paid to the
Employee or its beneficiaries in such manner and at such times as specified in
this Agreement.
10. Discretion of Board to Accelerate Payout. Notwithstanding any of the
----------------------------------------
other provisions of this Agreement, the Board of Directors of the Employer may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Employee (or the Employee's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Employer's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors
-12-
<PAGE>
and offered to the Employee [or Employee's spouse or designated beneficiaries]
on a "take it or leave it basis").
11. Miscellaneous.
-------------
11.1. Opportunity To Consult With Independent Advisors. The Employee
------------------------------------------------
acknowledges that the Employee has been afforded the opportunity to consult with
independent advisors of his or her choosing including, without limitation,
accountants or tax advisors and counsel regarding both the benefits granted to
the Employee under the terms of this Agreement and the (i) terms and conditions
which may affect the Employee's right to these benefits and (ii) personal tax
effects of such benefits including, without limitation, the effects of any
federal or state taxes, Section 280G of the Code, and any other taxes, costs,
expenses or liabilities whatsoever related to such benefits, which in any of the
foregoing instances the Employee acknowledges and agrees shall be the sole
responsibility of the Employee notwithstanding any other term or provision of
this Agreement. The Employee further acknowledges and agrees that the Employer
shall have no liability whatsoever related to any such personal tax effects or
other personal costs, expenses, or liabilities applicable to the Employee and
further specifically waives any right for the Employee and his or her heirs,
beneficiaries, legal representatives, agents, successors, and assigns to claim
or assert liability on the part of the Employer related to the matters described
above in this subparagraph 11.1. The Employee further acknowledges and agrees
that the Employee has read, understands and consents to all of the terms and
conditions of this Agreement, and that the Employee enters into this Agreement
with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters
-----------------------
in question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Employer in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
in San Francisco, California. In the event JAMS is unable or unwilling to
conduct the arbitration provided for under the terms of this Paragraph, or has
discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), in San Francisco, California, shall conduct the binding
arbitration referred to in this Paragraph. Notice of the demand for arbitration
shall be filed in writing with the other party to this Agreement and with JAMS
(or AAA, if necessary). In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statute of limitations. The arbitration shall be subject to such rules of
procedure used or established by JAMS, or if there are none, the rules of
procedure used or established by AAA. Any award rendered by JAMS or AAA shall be
final and binding upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and assigns, and may be
entered in any court having jurisdiction thereof. The obligation of the parties
to arbitrate pursuant to this clause shall be specifically enforceable in
accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Jose, California, unless otherwise agreed to
by the parties.
-13-
<PAGE>
11.3. Attorneys' Fees. In the event of any arbitration or litigation
---------------
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by the
arbitrator(s) or court, as the case may be, to have most nearly prevailed, even
if such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Employee
------
or the Employer under this Agreement shall be deemed to have been duly given, if
by personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Human Resources
If to the Employee: Steven C. Smith
[omitted]
-14-
<PAGE>
11.5. Assignment. Neither the Employee, the Employee's spouse, nor any
----------
other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Employee, the Employee's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Employer. The Employer's consent, if any, to one or more
assignments or transfers shall not obligate the Employer to consent to or be
construed as the Employer's consent to any other or subsequent assignment or
transfer.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of the Employee and the Employer and, as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used in this Agreement
shall be deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7. Non-waiver. The failure of either party to enforce at any time or
----------
for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. Partial Invalidity. If any term, provision, covenant, or
------------------
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement, including the schedules and
----------------
exhibits attached hereto and incorporated herein by this reference, contains all
of the covenants and agreement, and supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the subject
matter of this Agreement. Each party to this Agreement acknowledges that no
other representations, inducements, promises, or agreements, oral or otherwise,
have been made by any party, or anyone acting on behalf of any party, which are
not set forth herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be
-------------
effective only if it is in writing and signed by each party or such party's
authorized representative.
-15-
<PAGE>
11.11. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
11.13. Governing Law. The laws of the State of California, other than
-------------
those laws denominated choice of law rules, and, where applicable, the rules and
regulations of the California Commissioner of Financial Institutions, the
Federal Deposit Insurance Corporation, the Federal Reserve Board of Governors
and the Office of the Comptroller of the Currency, shall govern the validity,
interpretation, construction and effect of this Agreement.
11.14. Waiver of Prior Plan Benefit. To the extent that the Employee is
----------------------------
a participant in any other supplemental benefit plan provided by the Employer
which affords the Employee benefits in the event of the Employee's retirement or
death or a change in control of the Employer, it is an express condition
precedent to the effectiveness of this Agreement that the Employee execute and
deliver the Waiver of Prior Plan Benefit attached as Schedule "D" to this
Agreement.
IN WITNESS WHEREOF, the Employer and the Employee have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER THE EMPLOYEE
Greater Bay Bancorp
By: /s/ David L. Kalkbrenner /s/ Steven C. Smith
------------------------ -------------------
David L. Kalkbrenner Steven C. Smith
President
-16-
<PAGE>
SCHEDULE A
Applicable
Calendar Year Percentage
12/31/97 70%
12/31/98 85%
12/31/99 100%
<PAGE>
SCHEDULE B
----------
INDEX EMPLOYEE BENEFITS
-----------------------
1. Index Employee Benefits Determination. The Index Employee Benefits consist
-------------------------------------
of (i) accruals to the Employee's Benefit Account (as described in subparagraph
(a) below) during the Employee's employment by the Employer and (ii) the Index
Benefit (as described in subparagraph (b) below) after the Employee's employment
by the Employer terminates. The Index Employee Benefits shall be determined
based upon the following:
a. Benefit Account: A Benefit Account shall be established as a liability
---------------
reserve account on the books of the Employer for the benefit of the Employee.
Prior to the date on which the Employee becomes eligible to receive payments
under the Plan, such Benefit Account shall be increased (or decreased) each Plan
Year by an amount equal to the annual earnings (or loss) for that Plan Year
determined by the Index (described in subparagraph c below), less the
Opportunity Cost (described in subparagraph d below) for that Plan Year.
b. Index Benefit: After the date on which the Employee becomes eligible to
-------------
receive payments under the Plan, the Index Benefit for the Employee for any Plan
Year shall be determined by subtracting the Opportunity Cost for that Plan Year
from the annual earnings (if any) for that Plan year determined by the Index.
c. Index: The Index for any Plan Year shall be the aggregate annual
-----
after-tax income from the life insurance contracts described hereinafter as
defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such
insurance contracts were purchased on the Effective Date.
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $505,000
------------
Insurance Company: [omitted]
-----------------
Policy Number: [omitted]
-------------
Premiums Paid: $505,000
-------------
If such contracts of life insurance are actually purchased by the Employer, then
the actual policies as of the dates purchased shall be used in calculations to
determine the Index and Opportunity Cost. If such contracts of life insurance
are not purchased or are subsequently surrendered or lapsed, then the Employer
shall receive and use annual policy illustrations that assume the above
described policies were purchased from the above named insurance company(ies) on
the Effective Date to calculate the amount of the Index and Opportunity Cost.
<PAGE>
d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be
----------------
calculated by multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount of any Index
Benefits (described at subparagraph b above), and (iii) the amount of all
previous years after-tax Opportunity Costs; by (b) the average annualized
after-tax cost of funds calculated using a one-year U.S. Treasury Bill as
published in the Wall Street Journal. The applicable tax rate used to calculate
-------------------
the Opportunity Cost shall be the Employer's marginal tax rate until the
Employee's Retirement, or other termination of service (including a Change in
Control). Thereafter, the Opportunity Cost shall be calculated with the
assumption of a marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Employer is higher or
lower.
2. Employee Benefits Payments. The Employee shall be entitled to payment of the
--------------------------
Index Employee Benefits on the terms as specified in the Agreement.
EXAMPLE
INDEX EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
[n] [A] [B] [C] [D]
End of Year Cash Surrender Value of Index Opportunity Cost Annual
- ----------- ------------------------ ----- ---------------- ------
Life Insurance Policy [Annual A/0/ = premium Benefit
--------------------- Policy A/0/+C/n-1/x.05x -------
Income] (1-42%) B-C
A/n/-A/n-1/
<S> <C> <C> <C> <C>
0 $1,000,000 -- -- --
1 $1,050,000 $50,000 $29,000 $21,000
2 $1,102,500 $52,500 $29,841 $22,659
3 $1,157,625 $55,125 $30,706 $24,419
.
.
.
</TABLE>
Assumptions: Initial Insurance = $1,000,000
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
<PAGE>
SCHEDULE C
SUPPLEMENTAL BENEFITS
In addition to the Employee Benefits specified elsewhere in this Agreement,
the Employee shall be entitled to receive the following supplemental benefits
(the "Supplemental Benefits"):
Secular Trust Defined Benefit. Provided that the Employee has not exercised
the Employee's withdrawal rights under the Trust, the Employer shall make
contributions to the Trust, pursuant to paragraph 9 of the Agreement, on a
pre-tax basis in the amounts shown in column (B) of the following table. Such
contributions shall be made from time to time in the discretion of the Employer
provided that the total amount shown in column (B) below has been contributed to
the Trust by the end of the Plan Year shown in column (A) below.
(A) (B)
1998 $98,039
1999 $32,277
2000 $36,556
2001 $41,217
2002 $46,290
2003 $51,808
2004 $57,805
2005 $64,320
2006 $71,393
2007 $79,068
2008 $87,390
2009 $96,411
2010 $106,185
2011 $116,768
2012 $128,223
2013 $140,617
<PAGE>
The aggregate amount of the foregoing contributions shall be subject to
adjustment, from time to time, to ensure that the Trust is adequately funded to
afford the Employee with a projected defined benefit equal to the Applicable
Percentage of Fifty Seven Thousand Two Hundred Forty Dollars ($57,240) per annum
for twenty (20) years commencing the year in which the Employee attains age
sixty-two (62). In the event that the contributions made by the Employer to the
Trust as provided above are determined to be insufficient to fund the foregoing
Supplemental Benefits, the Employer shall make such further contributions to the
Trust as may be necessary to fund fully such Supplemental Benefits. Such
determination and adjusting contributions, if required, may be made from time to
time at the discretion of the Employer, but in all events not later than the
date on which the Employee Retires or otherwise becomes eligible to begin
receiving the Employee Benefits specified in Schedule "B". Provided that the
foregoing final adjusting contribution, if required, has been made, the Employer
shall have no obligation to make further contributions to the Trust once the
Employee Retires or otherwise becomes eligible to begin receiving the Employee
Benefits specified in Schedule "B".
Notwithstanding anything herein or in the Agreement to the contrary, the
obligation of the Employer to make the contributions to the Trust as specified
above shall terminate automatically upon the forfeiture or other termination of
the Employee's right to receive the Employee Benefits specified in Schedule "B",
as provided in this Agreement.
-2-
<PAGE>
SCHEDULE D
----------
WAIVER OF PRIOR PLAN BENEFITS
-----------------------------
In consideration for the Employee Benefits made available to the Employee
by this Employee Supplemental Compensation Benefits Agreement (the "Agreement"),
the Employee acknowledges and agrees as follows:
(a) The Employee is a party to that certain ___________________________
Agreement made with the Employer or its predecessor dated ____________, 19__
(the "Prior Plan Agreement");
(b) This Agreement and the Employee Benefits hereunder are provided as
a substitute for the Prior Plan Agreement and the benefits provided thereunder;
(c) The Prior Plan Agreement and the benefits thereunder are hereby
terminated effective as of the date of this Agreement;
(d) The Employee hereby waives and relinquishes for himself or herself,
and his or her heirs, beneficiaries, legal representatives, agents, successors
and assigns, any and all right, entitlement and interest that the Employee has
or may have pursuant to the Prior Plan Agreement and the benefits thereunder;
(e) The Employee accepts the Employee Benefits afforded by this
Agreement in full and complete substitution for the benefits otherwise provided
by the Prior Plan Agreement; and
(f) Without limiting the scope and effect of subparagraph 11.1 of the
Agreement, the Employee (i) has had an opportunity to consult with advisors of
the Employee's own choice in determining to enter into this Agreement and this
Waiver, (ii) understands that the effect of this Waiver is to terminate, waive
and relinquish forever all rights, entitlements and interests that the Employee
has or may have under the Prior Plan Agreement and the benefits thereunder as a
condition to receiving the Employee Benefits under this Agreement; and (iii) the
Employee is entering into this Agreement and this Waiver voluntarily and with
full appreciation of the effect of doing so.
Dated: , 1998
---------------------------- --------------------------------
Steven C. Smith
I consent to and agree to be bound by the foregoing Waiver:
- -----------------------------------------------------
Lourdes Smith, Spouse of Steven C. Smith
<PAGE>
SCHEDULE E
----------
BENEFICIARY DESIGNATION
-----------------------
To the Administrator of the Greater Bay Bancorp Employee Supplemental
Compensation Benefits Agreement:
Pursuant to the Provisions of my Employee Supplemental Compensation
Benefits Agreement with Greater Bay Bancorp, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
Primary Beneficiary:
- -------------------
- --------------------------- -------------------------- --------------------
Name Address Relationship
Secondary (Contingent) Beneficiary:
- ----------------------------------
- --------------------------- -------------------------- --------------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Employee Supplemental Compensation Benefits
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit payable according to the terms of my
Employee Supplemental Compensation Benefits Agreement shall be payable to the
personal representatives of the estate of said beneficiary who survived me but
died prior to receiving the total benefit provided by my Employee Supplemental
Compensation Benefits Agreement.
Dated: , 1998
---------------------------- ----------------------------------
Steven C. Smith
<PAGE>
CONSENT OF THE EMPLOYEE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
- ------------------------------------
I, Lourdes Smith, being the spouse of Steven C. Smith, after being afforded
the opportunity to consult with independent counsel of my choosing, do hereby
acknowledge that I have read, agree and consent to the foregoing Beneficiary
Designation which relates to the Employee Supplemental Compensation Benefits
Agreement entered into by my spouse effective as of January 1, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Employee
Supplemental Compensation Benefits Agreement and in which I may have a marital
property interest.
Dated: , 1998
----------------------------
- ----------------------------------------
Lourdes Smith
<PAGE>
SCHEDULE F
----------
DISTRIBUTION ELECTION
---------------------
Pursuant to the Provisions of my Employee Supplemental Compensation Benefits
Agreement with Greater Bay Bancorp, I hereby elect to have any distribution of
the balance in my Benefit Account paid to me in installments as designated
below:
____ sixty (60) monthly installments with the amount of each installment
determined as of each installment date by dividing the entire amount in
my Benefit Account by the number of installments then remaining to be
paid, with the final installment to be the entire remaining balance in
the Benefit Account.
____ one hundred twenty (120) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
____ one hundred eighty (180) monthly installments with the amount of each
installment determined as of each installment date by dividing the
entire amount in my Benefit Account by the number of installments then
remaining to be paid, with the final installment to be the entire
remaining balance in the Benefit Account.
Dated: , 1998
----------------------------
Signed:
---------------------------------
Steven C. Smith
<PAGE>
SCHEDULE G
----------
SECULAR TRUST
-------------
[to be finalized]
<PAGE>
Exhibit 10.15.1
November 4, 1999
Greater Bay Bancorp
2860 W. Bayshore Road
Palo Alto, CA 94303
Attention: Kamran Husain
Dear Mr. Husain:
This letter is to confirm that Wells Fargo Bank, National Association
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available to Greater Bay Bancorp ("Borrower") a revolving line of credit
under which Bank will make advances to Borrower from time to time up to and
including November 2, 2000 not to exceed the maximum principal amount of
$25,000,000.00 (the "Line of Credit"). The proceeds of the Line of Credit shall
be used for short term operational cash flow requirements of Borrower and its
subsidiaries. Each existing or hereafter acquired subsidiary of Borrower which
is a bank is hereinafter referred to a "Bank Subsidiary").
I. CREDIT TERMS:
1. LINE OF CREDIT:
(a) Line of Credit Note. Borrower's obligation to repay advances under the
-------------------
Line of Credit shall be evidenced by a promissory note substantially in the form
of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that (i) the total outstanding borrowings under the Line of Credit shall not at
any time exceed the maximum principal amount available thereunder, as set forth
above, and that (ii) Borrower shall maintain a zero balance on the Line of
Credit during the 30 consecutive day period immediately following any period of
180 consecutive days during which the outstanding principal balance of the Line
of Credit exceeded zero.
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 2
II. INTEREST/FEES:
1. Interest. The outstanding principal balance of the Line of Credit
--------
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
2. Computation and Payment. Interest shall be computed on the basis of a
-----------------------
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
3. Commitment Fee. Borrower shall pay to Bank a non-refundable commitment
--------------
fee for the Line of Credit equal to $5,000.00, which fee shall be due and
payable in full on the date of Borrower's execution of this letter.
4. Collection of Payments. Borrower authorizes Bank to collect all
----------------------
interest and fees due under the Line of Credit by charging Borrower's demand
deposit account number 4000-583708 ___ with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
III. REPRESENTATIONS AND WARRANTIES:
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this letter and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this letter.
1. Legal Status. Borrower is a corporation, duly organized and existing
------------
and in good standing under the laws of California and is qualified or licensed
to do business in all jurisdictions in which such qualification or licensing is
required or in which the failure to so qualify or to be so licensed could have a
material adverse effect on Borrower.
2. Authorization and Validity. This letter, the Line of Credit Note, and
--------------------------
each other document, contract or instrument deemed necessary by Bank to evidence
any extension of credit to Borrower pursuant to the terms and conditions hereof,
or now or at any time hereafter required by or delivered to Bank in connection
with this letter (collectively, the "Loan Documents") have been duly authorized,
and upon their execution and delivery in accordance with the provisions hereof
will constitute legal, valid and binding agreements and obligations of Borrower
or the
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 3
party which executes the same, enforceable in accordance with their respective
terms.
3. No Violation. The execution, delivery and performance by Borrower of
------------
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or by-
laws of Borrower, or result in a breach of or constitute a default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
4. Litigation. There are no pending, or to the best of Borrower's
----------
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
5. Correctness of Financial Statement. The financial statement of
----------------------------------
Borrower dated June 30, 1999, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the consolidated financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
consolidated financial condition of Borrower, nor has Borrower or any Bank
Subsidiary mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.
6. Income Tax Returns. Borrower has no knowledge of any pending
------------------
assessments or adjustments of its income tax payable with respect to any year.
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 4
7. No Subordination. There is no agreement, indenture, contract or
----------------
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this letter to any other obligation of Borrower.
8. Permits, Franchises. Borrower possesses, and will hereafter possess,
-------------------
all permits, consents, approvals, franchises and licenses required and all
rights to trademarks, trade names, patents and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
9. ERISA. Borrower is in compliance in all material respects with all
-----
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event,
as defined in ERISA, has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
10. Other Obligations. Borrower is not in default on any obligation for
-----------------
borrowed money, any material purchase money obligation or any other material
lease, commitment, contract, instrument or obligation.
11. Environmental Matters. Except as disclosed by Borrower to Bank in
---------------------
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 5
IV. CONDITIONS:
1. Conditions of Initial Extension of Credit. The obligation of Bank to
-----------------------------------------
extend any credit contemplated by this letter is subject to fulfillment to
Bank's satisfaction of all of the following conditions:
(a) Documentation. Bank shall have received each of the Loan Documents,
-------------
duly executed and in form and substance satisfactory to Bank.
(b) Financial Condition. There shall have been no material adverse change,
-------------------
as determined by Bank, in the financial condition or business of Borrower, nor
any material decline, as determined by Bank, in the market value of a
substantial or material portion of the assets of Borrower.
2. Conditions of Each Extension of Credit. The obligation of Bank to make
--------------------------------------
each extension of credit requested by Borrower hereunder shall be subject to the
fulfillment to Bank's satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and in
----------
each of the other Loan Documents shall be true on and as of the date of the
signing of this letter and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
default hereunder, and no condition, event or act which with the giving of
notice or the passage of time or both would constitute such a default, shall
have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which
-------------
may be required in connection with such extension of credit.
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 6
V. COVENANTS:
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
1. Punctual Payment. Punctually pay all principal, interest, fees or
----------------
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein , and immediately upon demand by Bank, the
amount by which the outstanding principal balance of the Line of Credit at any
time exceeds any limitation on borrowings applicable thereto.
2. Accounting Records. Maintain adequate books and records in accordance
------------------
with generally accepted accounting principles consistently applied, and permit
any representative of Bank, at any reasonable time, to inspect, audit and
examine such books and records, to make copies of the same, and inspect the
properties of Borrower.
3. Financial Statements. Provide to Bank all of the following, in form and
--------------------
detail satisfactory to Bank:
(a) not later than 95 days after and as of the end of each fiscal year, an
audited consolidated financial statement of Borrower, prepared by
independent certified public accountants acceptable to Bank, to include
balance sheet, income statement, statement of cash flows, together with an
unqualified opinion;
(b) not later than 50 days after and as of the end of each fiscal quarter,
a consolidated financial statement of Borrower, prepared by Borrower, to
include balance sheet, income statement and statement of cash flows;
(c) promptly upon the occurrence thereof, notify Bank of any formal
enforcement action taken or, to the knowledge of Borrower, proposed to be
taken against Borrower and/or any of its subsidiaries; and
(d) from time to time such other information as Bank may reasonably
request.
4. Compliance. Preserve and maintain all licenses, permits, governmental
----------
approvals, rights, privileges and franchises necessary for the conduct of its
business; and comply
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 7
with the provisions of all documents pursuant to which Borrower is organized
and/or which govern Borrower's continued existence and with the requirements of
all laws, rules, regulations and orders of a governmental agency applicable to
Borrower and/or its business, except any of the foregoing which, if not
preserved, maintained or complied with, would not have a material adverse effect
on Borrower.
5. Insurance. Maintain and keep in force insurance of the types and in
---------
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, property
damage and workers' compensation, with all such insurance carried with companies
and in amounts satisfactory to Bank, and deliver to Bank from time to time at
Bank's request schedules setting forth all insurance then in effect.
6. Facilities. Keep all properties useful or necessary to Borrower's
----------
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
7. Taxes and Other Liabilities. Pay and discharge when due any and all
---------------------------
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event that Borrower is obligated to make such payment.
8. Litigation. Promptly give notice in writing to Bank of any litigation
----------
pending or threatened against Borrower with a claim in excess of $1,000,000.00.
9. Financial Condition. Maintain Borrower's financial condition (or, with
-------------------
respect to paragraph (c) below, cause all of Borrower's subsidiaries or Bank
Subsidiaries (as applicable) to maintain their combined financial condition) as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices (except to the extent modified by the
definitions herein), with compliance determined commencing with Borrower's
financial statements for the period ending September 30, 1999:
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 8
(a) Double Leverage Ratio not at any time greater than 1.50 to 1.0
determined as of the end of each fiscal quarter, with "Double Leverage Ratio"
----------------------
defined as the ratio of (i) Borrower's equity investment in all its
subsidiaries, to (ii) Borrower's equity.
(b) Maintain on a consolidated basis (and cause each Bank Subsidiary to
maintain) a capital ratio sufficient to be rated "well capitalized" by the
Federal Reserve Board, Federal Deposit Insurance Corporation and each other
federal or state regulatory entity or agency which has jurisdiction over
Borrower or any Bank Subsidiary and maintains such a rating system; provided,
---------
however, that in the event Borrower acquires a Bank Subsidiary after the date of
- -------
this Agreement which is not "well capitalized" at the time of such acquisition,
Borrower shall cause such Bank Subsidiary to become "well capitalized" within
six (6) months following such acquisition.
(c) Maintain consolidated net income after taxes not less than $1.00,
determined as of each fiscal quarter end on a rolling four (4) quarter basis.
Consolidated herein refers to Borrower and all of its subsidiaries.
10. Other Indebtedness. Not create, incur, assume or permit to exist any
------------------
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, (b) any other
liabilities of Borrower and any subsidiaries existing as of, and disclosed to
Bank prior to, the date hereof, (c) unsecured and uncommitted operating lines of
credit, such as daylight overdraft facilities and Fed Funds lines and the like,
(d) other unsecured loans and lines of credit in an aggregate amount not to
exceed, on a consolidated basis, 50% of Borrower's consolidated equity preceding
the incurring of such indebtedness, and (e) additional unsecured liabilities
which are subordinated to the obligations of Borrower to Bank pursuant to
agreements in form and content acceptable to Bank; provided that the
indebtedness described in clauses (b), (c) and (d) shall not be prior or senior
in right of payment to the obligations of Borrower to Bank.
11. Merger, Consolidation, Transfer of Assets. Not merge into or
-----------------------------------------
consolidate with any other entity unless Borrower is the surviving entity; nor
make any substantial change in the nature of Borrower's business as conducted as
of the date hereof; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of Borrower's assets except in the ordinary
course of its business.
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 9
12. Loans, Advances, Investments. Not make any loans or advances to or
----------------------------
investments in any person or entity, except (a) any of the foregoing existing as
of, and disclosed to Bank prior to, the date hereof, (b) loans and advances to
Borrower's subsidiaries, provided that at no time shall the outstanding
principal balance of such loans and advances to any Bank Subsidiaries exceed 50%
of the equity of such subsidiary, (c) loans and advances in the ordinary course
of Borrower's business, (d) additional investments in new subsidiaries, and (e)
investments (other than in subsidiaries) in the ordinary course of business.
13. Distributions. Upon and during the continuance of an Event of Default
-------------
(as defined in Section VI below), not to declare or pay any distributions to its
shareholders either in cash or any other property (other than dividends in the
form of stock), nor redeem, retire, repurchase or otherwise acquire any
ownership interest in Borrower.
14. Year 2000 Compliance. Perform all acts reasonably necessary to ensure
--------------------
that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all of Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems.
As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the terms hereof
as Bank may from time to time require.
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 10
VI. DEFAULT, REMEDIES:
1. Default, Remedies. Upon the violation of any term or condition of any
-----------------
of the Loan Documents, or upon the occurrence of any default or defined event of
default under any of the Loan Documents (each, an "Event of Default"): (a) all
indebtedness of Borrower under each of the Loan Documents, any term thereof to
the contrary notwithstanding, shall at Bank's option and without notice become
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are expressly waived by Borrower; (b) the obligation, if
any, of Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
credit extended by Bank to Borrower under any of the Loan Documents and to
exercise any or all of the rights of a beneficiary or secured party pursuant to
the applicable law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of any such Event of
Default, are cumulative and not exclusive, and shall be in addition to any other
rights, powers or remedies provided by law or equity.
2. No Waiver. No delay, failure or discontinuance of Bank in exercising
---------
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 11
VII. MISCELLANEOUS:
1. Notices. All notices, requests and demands which any party is required
-------
or may desire to give to any other party under any provision of this letter must
be in writing delivered to each party at its address first set forth above, or
to such other address as any party may designate by written notice to all other
parties. Each such notice, request and demand shall be deemed given or made as
follows: (a)if sent by hand delivery, upon delivery; (b) if sent by mail, upon
the earlier of the date of receipt or three (3) days after deposit in the U.S.
mail, first class and postage prepaid; and (c) if sent by telecopy, upon
receipt.
2. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
-----------------------------------
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the preparation of amendments and
waivers, if any, of this letter and the other Loan Documents, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity.
3. Successors, Assignment. This letter shall be binding upon and inure to
----------------------
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder.
4. Entire Agreement; Amendment. This letter and the other Loan Documents
---------------------------
constitute the entire agreement between Borrower and Bank with respect to any
extension of credit by Bank subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This letter may be amended or modified only in writing
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 12
signed by each party hereto.
5. No Third Party Beneficiaries. This letter is made and entered into for
----------------------------
the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.
6. Severability of Provisions. If any provision of this letter shall be
--------------------------
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.
7. Governing Law. This letter shall be governed by and construed in
-------------
accordance with the laws of the State of California.
8. Confidentiality. Bank acknowledges that it and Borrower and
---------------
Borrower's Bank Subsidiaries compete with one another in a number of areas,
including competing for potential acquisitions of other financial institutions.
In consideration of the foregoing, Bank agrees to execute a Confidentiality
Agreement in the form and content of Exhibit B hereto.
9. Arbitration.
-----------
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this letter. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 13
with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 14
arbitrators must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
---------------
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding anything
--------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or
<PAGE>
Greater Bay Bancorp
November 4, 1999
Page 15
other party to an arbitration proceeding may disclose the existence, content or
results thereof, except for disclosures of information by a party required in
the ordinary course of its business, by applicable law or regulation, or to the
extent necessary to exercise any judicial review rights set forth herein. If
more than one agreement for arbitration by or between the parties potentially
applies to a Dispute, the arbitration provision most directly related to the
Loan Documents or the subject matter of the Dispute shall control. This
arbitration provision shall survive termination, amendment or expiration of any
of the Loan Documents or any relationship between the parties.
Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Bank's commitment to extend any credit to
Borrower pursuant to the terms of this letter shall terminate on November 10,
1999, unless this letter is acknowledged by Borrower and returned to Bank on or
before that date.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ James A. Gross
--------------------------
Title: Vice President and
Relationship
Manager
----------------
Acknowledged and accepted as of November 15, 1999:
GREATER BAY BANCORP
By: /s/ Kamran Husain
-----------------
Title: Senior Vice President-Finance
By: /s/ Steven C. Smith
-------------------
Title: EVP, CAO & CFO
<PAGE>
Exhibit 10.15.2
REVOLVING LINE OF CREDIT NOTE
$25,000,000.00 San Francisco, California
November 4, 1999
FOR VALUE RECEIVED, the undersigned GREATER BAY BANCORP ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at 420 Montgomery, San Francisco, California, or at such other
place as the holder hereof may designate, in lawful money of the United States
of America and in immediately available funds, the principal sum of Twenty-Five
Million Dollars ($25,000,000.00), or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other day
on which commercial banks in California are authorized or required by law to
close.
(b) "Fixed Rate Term" means, for each advance requested hereunder, a period
of three (3) months commencing initially on the Business Day on which such
advance is made, and automatically renewing for a period of 3 months at the end
of each such 3 month period (or renewed period), during which the outstanding
principal amount under this Note related to such advance bears interest
determined in relation to LIBOR as in effect on the first Business Day of the
applicable 3 month period; provided however, that no Fixed Rate Term shall
extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would
end on a day that is not a Business Day, then such Fixed Rate Term shall be
extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
"Base LIBOR" means the rate per annum for United States dollar deposits quoted
by Bank as the Inter-Bank Market Offered Rate, with the understanding that such
rate is quoted by Bank for the purpose of calculating effective rates of
interest for loans making reference thereto, on the first day of a Fixed Rate
Term for delivery of funds on said date for a period of time
-1-
<PAGE>
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London Inter-
Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
--------
interest (computed on the basis of a 360-day year, actual days elapsed) at a
fixed rate per annum determined by Bank to be one quarter percent (0.25%) above
LIBOR in effect on the first day of the applicable Fixed Rate Term. Bank is
hereby authorized to note the interest rate applicable to this Note during the
term hereof and any payments made thereon on Bank's books and records (either
manually or by electronic entry) and/or on any schedule attached to this Note,
which notations shall be prima facie evidence of the accuracy of the information
noted.
(b) Additional LIBOR Provisions.
---------------------------
(i) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly
give notice thereof to Borrower. If such notice is given and until such notice
has been withdrawn by Bank, then the outstanding principal balance hereof,
subsequent to the end of the Fixed Rate Term applicable thereto, shall bear
interest determined in relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank to
maintain interest rates
-2-
<PAGE>
based on LIBOR, then any such unlawful LIBOR-based loans then outstanding shall
be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based loans to remain in effect until the expiration of the Fixed Rate
Term applicable thereto, then such permitted LIBOR-based loans shall continue in
effect until the expiration of such Fixed Rate Term. Upon the occurrence of any
of the foregoing events, Borrower shall pay to Bank immediately upon demand such
amounts as may be necessary to compensate Bank for any fines, fees, charges,
penalties or other costs incurred or payable by Bank as a result thereof and
which are attributable to any LIBOR based interest loans made available to
Borrower hereunder, and, absent manifest error, any reasonable allocation made
by Bank among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to making
any LIBOR based loans, or change the basis of taxation of payments to
Bank of principal, interest, fees or any other amount payable
hereunder (except for changes in the rate of tax on the overall net
income of Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR based loans hereunder and/or to reduce
any amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
based loans. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR based loans made
available to Borrower hereunder, any reasonable allocation made by Bank among
its operations shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be payable on
-------------------
the last day of each month, commencing November 30, 1999 and on the maturity
date of this Note.
-3-
<PAGE>
(e) Default Interest. From and after the maturity date of this Note, or
----------------
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for Borrower, which balance may be endorsed hereon from time to time by
the holder. The outstanding principal balance of this Note shall be due and
payable in full on November 2, 2000.
(b) Advances. Advances hereunder, to the total amount of the principal sum
--------
stated above, may be made by the holder at the oral or written request of (i)
Steven C. Smith, Shawn E. Saunders, Kamran R. Husain or Mark Eschen, either one
acting alone, who are authorized to request advances and direct the disposition
of any advances until written notice of the revocation of such authority is
received by the holder at the office designated above, or (ii) any person, with
respect to advances deposited to the credit of any account of Borrower with the
holder, which advances, when so deposited, shall be conclusively presumed to
have been made to or for the benefit of Borrower regardless of the fact that
persons other than those authorized to request advances may have authority to
draw against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by Borrower.
(c) Application of Payments. Each payment made on this Note shall be
-----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof, with such payments applied to the oldest Fixed Rate
Term first.
PREPAYMENT:
(a) Borrower may prepay principal on any portion of this Note at any time
and in any amount. In consideration of Bank providing this prepayment option to
Borrower, or if this Note
-4-
<PAGE>
shall become due and payable at any time prior to the last day of the Fixed Rate
Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Fixed Rate Term matures, calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each month
---------
on the amount prepaid at the interest rate applicable to such amount
had it remained outstanding until the last day of the Fixed Rate Term
applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount of
--------
interest which would have accrued for the same month on the amount
prepaid for the remaining term of such Fixed Rate Term at LIBOR in
effect on the date of prepayment for new loans made for such term and
in a principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Borrower, therefore, agrees to pay the above-described prepayment
fee and agrees that said amount represents a reasonable estimate of the
prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay
any prepayment fee when due, the amount of such prepayment fee shall thereafter
bear interest until paid at a rate per annum two percent (2%) above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay, within 5 calendar days after the due date, any
principal, interest, fees or other charges hereunder or under any contract,
instrument or document executed in connection with this Note; provided however,
that with respect to interest, fees or other charges, no Event of Default shall
be deemed to have occurred if the same are paid later than the fifth day after
the applicable due date but within 30 days after the
-5-
<PAGE>
applicable due date no more than two times during the term of this Note.
(b) The filing of a petition by or against Borrower under any provisions of
the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time, or under any similar or other law relating to
bankruptcy, insolvency, reorganization or other relief for debtors (and, if
---
filed against Borrower, the proceeding in question is not dismissed within 60
days after its filing, provided further, that Bank shall not be required to make
advances during such 60 day period); the appointment of a receiver, trustee,
custodian or liquidator of or for any part of the assets or property of
Borrower; Borrower becomes insolvent, makes a general assignment for the benefit
of creditors or is generally not paying its debts as they become due; or any
attachment or like levy on any property of Borrower with a book value of
$5,000,000.00 or more.
(c) The dissolution or liquidation of Borrower.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which Borrower has incurred (i) any obligation for borrowed
money, (ii) any purchase obligation, or (iii) any other liability of any kind to
any person or entity, including the holder, and, in the cases of (ii) or (iii)
---
the obligation or other liability exceeds $5,000,000.00, and, in the cases of
---
(i), (ii) or (iii), the creditor has taken action(s) with respect to such
default, which action may consist solely of the sending of a notice of default.
(e) Any financial statement provided by Borrower to Bank proves to be
incorrect, false or misleading in any material respect.
(f) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note, and, if such violation or breach is by
---
its nature susceptible of being cured, the same is not cured within 30 days
after the date Borrower first knew (or, using reasonable due diligence, should
have known) thereof.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
--------
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by Borrower, and the
obligation, if any, of the holder to extend any further credit
-6-
<PAGE>
hereunder shall immediately cease and terminate. Borrower shall pay to the
holder immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the holder's in-house counsel),
expended or incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to Borrower or any other person or entity.
(b) Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
GREATER BAY BANCORP
By: /s/ Steven C. Smith
------------------- --------------------------
Title: EVP, CAO & CFO
-----------------------
By:
-----------------------
Title:
--------------------
-7-
<PAGE>
Exhibit 12.1
Greater Bay Bancorp Annual Report of Form 10-K
Statements re Computation of Ratios of Earnings to Fixed Charges
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income before Income taxes $ 23,954 $19,171 $16,434 $ 8,046 $ 7,112
Fixed charges:
Interest expense 71,618 54,669 39,969 27,376 23,494
Interest factor of rental expense 4,838 3,675 3,484 3,101 2,760
-------------------------------------------------------------------------
Fixed charges 76,456 58,334 43,453 30,476 26,254
Less: interest expense on deposits 63,110 46,410 36,425 24,535 21,057
-------------------------------------------------------------------------
Net fixed charges 13,346 11,924 7,028 5,941 5,197
-------------------------------------------------------------------------
Earnings, excluding Interest on deposits $ 37,300 $31,095 $23,462 $13,987 $12,309
=========================================================================
Ratio of earnings, excluding interest on
deposits, to net fixed charges(1) 2.79x 2.61x 3.34x 2.35x 2.37x
Earnings, including interest on deposits $100,410 $77,505 $59,887 $38,522 $33,366
=========================================================================
Ratio of earnings, including interest on
deposits, to fixed charges(2) 1.31x 1.33x 1.38x 1.26x 1.27x
</TABLE>
(1) For the purposes of computing the ratio of earnings, excluding interest on
deposits, to net fixed charges, earnings represent income before income
taxes plus net fixed charges. Net fixed charges include Interest expense,
other than interest on deposits, and that portion of rental expense,
generally one third, deemed representative of the interest factor.
(2) For the purposes of computing the ratio of earnings, including interest on
deposits, to fixed charges, earnings represent income before income taxes
plus fixed charges. Fixed charges include interest expense and that portion
of rental expense, generally one third, deemed representative of the
Interest factor.
<PAGE>
Exhibit 21
GREATER BAY BANCORP
ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES OF THE REGISTRANT
Greater Bay Bancorp owns 100% of the outstanding voting securities of the
following corporations, either directly or indirectly, all of which are included
in Greater Bay Bancorp's consolidated financial statements.
Name Jurisdiction of Incorporation
---- -----------------------------
Bay Area Bank California
Bay Bank of Commerce California
Cupertino National Bank United States
Golden Gate Bank California
Mid-Peninsula Bank California
Peninsula Bank of Commerce California
Pacific Business Funding Corporation California
Peninsula Real Estate Corporation California
GBB Capital I Delaware
GBB Capital II Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-30913, 333-67677, 333-30915, 333-16967 and
333-47747) and Form S-3 (Nos. 333-61679 and 333-70025) of Greater Bay Bancorp
of our report dated January 31, 2000 relating to the consolidated financial
statements which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
January 31, 2000
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<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999 REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 95,416 78,660
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 191,700 62,800
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 307,840 289,291
<INVESTMENTS-CARRYING> 141,725 102,108
<INVESTMENTS-MARKET> 136,481 103,028
<LOANS> 1,715,284 1,184,752
<ALLOWANCE> (38,035) (24,359)
<TOTAL-ASSETS> 2,624,965 1,882,391
<DEPOSITS> 2,300,888 1,602,342
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 113,322 111,613
<LONG-TERM> 50,000 50,000
0 0
0 0
<COMMON> 92,096 66,711
<OTHER-SE> 68,659 51,725
<TOTAL-LIABILITIES-AND-EQUITY> 2,624,965 1,882,391
<INTEREST-LOAN> 136,828 102,092
<INTEREST-INVEST> 26,267 21,743
<INTEREST-OTHER> 12,255 11,163
<INTEREST-TOTAL> 175,350 134,998
<INTEREST-DEPOSIT> 63,110 46,410
<INTEREST-EXPENSE> 71,618 54,659
<INTEREST-INCOME-NET> 103,732 80,339
<LOAN-LOSSES> 12,249 6,369
<SECURITIES-GAINS> (19) 374
<EXPENSE-OTHER> 83,650 54,754
<INCOME-PRETAX> 39,660 29,877
<INCOME-PRE-EXTRAORDINARY> 39,660 29,877
<EXTRAORDINARY> (88) 0
<CHANGES> 0 0
<NET-INCOME> 27,711 20,158
<EPS-BASIC> 2.28 1.69
<EPS-DILUTED> 2.17 1.59
<YIELD-ACTUAL> 4.91 5.15
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<LOANS-PAST> 10 0
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<LOANS-PROBLEM> 0 0
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<CHARGE-OFFS> (2,619) (1,670)
<RECOVERIES> 1,301 445
<ALLOWANCE-CLOSE> 38,035 24,359
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<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999 REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<CASH> 72,179
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 82,500
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 66,872
<INVESTMENTS-MARKET> 61,628
<LOANS> 892,736
<ALLOWANCE> (19,032)
<TOTAL-ASSETS> 1,456,119
<DEPOSITS> 1,279,709
<SHORT-TERM> 0
<LIABILITIES-OTHER> 57,709
<LONG-TERM> 20,000
0
0
<COMMON> 61,316
<OTHER-SE> 37,385
<TOTAL-LIABILITIES-AND-EQUITY> 1,456,119
<INTEREST-LOAN> 85,415
<INTEREST-INVEST> 11,657
<INTEREST-OTHER> 9,948
<INTEREST-TOTAL> 107,020
<INTEREST-DEPOSIT> 36,426
<INTEREST-EXPENSE> 39,969
<INTEREST-INCOME-NET> 67,051
<LOAN-LOSSES> 7,078
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 47,197
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<INCOME-PRE-EXTRAORDINARY> 22,805
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,485
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 5.69
<LOANS-NON> 3,784
<LOANS-PAST> 158
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 12,600
<CHARGE-OFFS> (2,105)
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<ALLOWANCE-CLOSE> 19,032
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<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999 REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
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<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> OCT-01-1999 JUL-01-1999
<PERIOD-END> DEC-31-1999 SEP-30-1999
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<FED-FUNDS-SOLD> 191,700 188,300
<TRADING-ASSETS> 0 0
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<INVESTMENTS-MARKET> 136,481 121,991
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<ALLOWANCE> (38,035) (30,856)
<TOTAL-ASSETS> 2,624,965 2,435,643
<DEPOSITS> 2,300,888 2,169,260
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 113,322 82,896
<LONG-TERM> 50,000 50,000
0 0
0 0
<COMMON> 92,096 71,913
<OTHER-SE> 68,659 61,574
<TOTAL-LIABILITIES-AND-EQUITY> 2,624,965 2,435,643
<INTEREST-LOAN> 39,378 35,629
<INTEREST-INVEST> 7,603 6,891
<INTEREST-OTHER> 4,277 3,015
<INTEREST-TOTAL> 51,259 45,536
<INTEREST-DEPOSIT> 19,069 16,700
<INTEREST-EXPENSE> 21,154 18,567
<INTEREST-INCOME-NET> 30,105 26,969
<LOAN-LOSSES> 6,013 3,578
<SECURITIES-GAINS> (23) 4
<EXPENSE-OTHER> 28,569 15,394
<INCOME-PRETAX> 16,592 12,430
<INCOME-PRE-EXTRAORDINARY> 16,592 12,430
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<CHANGES> 0 0
<NET-INCOME> 9,524 7,853
<EPS-BASIC> 0.77 0.64
<EPS-DILUTED> 0.73 0.61
<YIELD-ACTUAL> 4.94 4.92
<LOANS-NON> 4,333 5,943
<LOANS-PAST> 10 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 30,856 27,167
<CHARGE-OFFS> (1,406) (680)
<RECOVERIES> 277 788
<ALLOWANCE-CLOSE> 38,035 30,856
<ALLOWANCE-DOMESTIC> 38,035 30,856
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999 REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
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<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 MAR-31-1999
<CASH> 102,221 87,506
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 153,400 111,400
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 303,923 292,229
<INVESTMENTS-CARRYING> 102,432 104,985
<INVESTMENTS-MARKET> 97,188 99,741
<LOANS> 1,432,187 1,328,808
<ALLOWANCE> (27,167) (25,066)
<TOTAL-ASSETS> 2,264,198 2,084,374
<DEPOSITS> 1,967,339 1,808,995
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 118,797 100,184
<LONG-TERM> 50,000 50,000
0 0
0 0
<COMMON> 70,629 68,413
<OTHER-SE> 57,433 56,782
<TOTAL-LIABILITIES-AND-EQUITY> 2,264,198 2,084,374
<INTEREST-LOAN> 32,376 29,445
<INTEREST-INVEST> 6,163 5,610
<INTEREST-OTHER> 3,105 1,858
<INTEREST-TOTAL> 41,644 36,911
<INTEREST-DEPOSIT> 14,679 12,662
<INTEREST-EXPENSE> 17,093 14,804
<INTEREST-INCOME-NET> 24,551 22,107
<LOAN-LOSSES> 1,697 961
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 15,199 14,157
<INCOME-PRETAX> 11,046 9,923
<INCOME-PRE-EXTRAORDINARY> 11,046 9,923
<EXTRAORDINARY> 0 (88)
<CHANGES> 0 0
<NET-INCOME> 4,347 5,987
<EPS-BASIC> 0.36 0.50
<EPS-DILUTED> 0.34 0.48
<YIELD-ACTUAL> 4.81 4.96
<LOANS-NON> 3,402 3,019
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 25,066 24,359
<CHARGE-OFFS> (242) (291)
<RECOVERIES> 200 36
<ALLOWANCE-CLOSE> 27,167 25,066
<ALLOWANCE-DOMESTIC> 27,167 25,066
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<ALLOWANCE-UNALLOCATED> 0 0
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<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999 REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
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<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> OCT-01-1998 JUL-01-1998
<PERIOD-END> DEC-31-1998 SEP-30-1998
<CASH> 78,660 78,305
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 62,800 115,500
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 289,291 329,084
<INVESTMENTS-CARRYING> 101,718 108,809
<INVESTMENTS-MARKET> 96,474 103,565
<LOANS> 1,209,111 1,023,150
<ALLOWANCE> (24,359) (22,798)
<TOTAL-ASSETS> 1,882,391 1,822,765
<DEPOSITS> 1,602,342 1,543,366
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 111,613 115,529
<LONG-TERM> 50,000 50,000
0 0
0 0
<COMMON> 66,701 64,957
<OTHER-SE> 51,735 48,913
<TOTAL-LIABILITIES-AND-EQUITY> 1,882,391 1,822,765
<INTEREST-LOAN> 27,018 26,109
<INTEREST-INVEST> 5,818 6,260
<INTEREST-OTHER> 2,824 3,153
<INTEREST-TOTAL> 35,659 35,522
<INTEREST-DEPOSIT> 12,013 12,832
<INTEREST-EXPENSE> 14,381 14,861
<INTEREST-INCOME-NET> 21,278 20,661
<LOAN-LOSSES> 1,986 1,912
<SECURITIES-GAINS> 320 4
<EXPENSE-OTHER> 14,195 13,451
<INCOME-PRETAX> 8,587 7,928
<INCOME-PRE-EXTRAORDINARY> 8,587 7,928
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,959 5,342
<EPS-BASIC> 0.51 0.46
<EPS-DILUTED> 0.47 0.42
<YIELD-ACTUAL> 4.91 0
<LOANS-NON> 2,033 3,199
<LOANS-PAST> 0 18
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 22,798 20,658
<CHARGE-OFFS> (510) (78)
<RECOVERIES> 96 195
<ALLOWANCE-CLOSE> 24,359 22,798
<ALLOWANCE-DOMESTIC> 24,359 22,798
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999 REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 MAR-31-1998
<CASH> 97,019 97,309
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 141,600 95,900
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 324,511 211,058
<INVESTMENTS-CARRYING> 53,054 60,113
<INVESTMENTS-MARKET> 47,810 54,869
<LOANS> 1,002,118 951,895
<ALLOWANCE> (20,658) (19,303)
<TOTAL-ASSETS> 1,754,692 1,572,829
<DEPOSITS> 1,524,033 1,329,862
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 104,615 119,827
<LONG-TERM> 20,000 20,000
0 0
0 0
<COMMON> 62,643 59,078
<OTHER-SE> 43,401 44,062
<TOTAL-LIABILITIES-AND-EQUITY> 1,754,692 1,572,829
<INTEREST-LOAN> 25,034 23,579
<INTEREST-INVEST> 4,565 4,251
<INTEREST-OTHER> 3,188 2,674
<INTEREST-TOTAL> 32,787 30,504
<INTEREST-DEPOSIT> 11,244 10,330
<INTEREST-EXPENSE> 13,369 12,047
<INTEREST-INCOME-NET> 19,418 18,457
<LOAN-LOSSES> 1,437 1,046
<SECURITIES-GAINS> 42 8
<EXPENSE-OTHER> 14,162 12,711
<INCOME-PRETAX> 6,461 7,068
<INCOME-PRE-EXTRAORDINARY> 6,461 7,068
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,152 4,708
<EPS-BASIC> 0.36 0.41
<EPS-DILUTED> 0.33 0.38
<YIELD-ACTUAL> 0 0
<LOANS-NON> 4,134 3,720
<LOANS-PAST> 75 407
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 19,303 19,032
<CHARGE-OFFS> (183) (893)
<RECOVERIES> 32 118
<ALLOWANCE-CLOSE> 20,658 19,303
<ALLOWANCE-DOMESTIC> 20,658 19,303
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
